Tag: corporate bond

Study Question of the Month – February

This month’s study question from the Solomon Online Exam Simulator question database is now available. Relevant to the Series 7, 52, and 65. –ANSWER POSTED– Continue reading

This month’s study question from the Solomon Online Exam Simulator question database is now available.

***Submit your answer to info@solomonexamprep.com to be entered to win a $10 Starbucks gift card.***

 Study Question

Question (Relevant to the Series 7, Series 52, and Series 65) 

Jenny lives in Minnesota. She is comparing a Washington state municipal bond that pays 5% to similar corporate bonds. She has a federal tax rate of 20% and a State rate of 4%. What yield will the corporate bond have to pay to be equivalent to the municipal bond?

Answers:

A. 4%

B. 5%

C. 6.25%

D. 6.58%

Correct Answer: C. 6.25%

Rationale: Because Jenny lives in Minnesota, the interest on her municipal bond will be tax-exempt at the federal level, but not at the state level. To calculate the tax-equivalent yield of a municipal bond, simply take the rate of the municipal bond and divide it by 1 minus the tax rate. So the tax equivalent yield = .05/(1-.20) = .0625 or 6.25%.

Congratulations! This month’s winner is Ruth K.

Weekly study questions are from Solomon’s industry-leading Online Exam Simulator.

Study Question of the Week: June 18, 2014 Edition

This week’s study question from the Solomon Online Exam Simulator question database is now available. Relevant to the Series 7, Series 52, and Series 65. –ANSWER POSTED– Continue reading

This week’s study question from the Solomon Online Exam Simulator question database is now available.

Study ? of the Week

Question (Relevant to the Series 7, Series 52, and Series 65): 

Jenny lives in Minnesota. She is comparing a Washington state municipal bond that pays 5% to similar corporate bonds. She has a federal tax rate of 20% and a State rate of 4%. What yield will the corporate bond have to pay to be equivalent to the municipal bond?

Answers:

A. 4%

B. 5%

C. 6.25%

D. 6.58%

Correct Answer: C. 6.25%

Rationale: Because Jenny lives in Minnesota, the interest on her municipal bond will be tax-exempt at the federal level, but not at the state level. To calculate the tax-equivalent yield of a municipal bond, simply take the rate of the municipal bond and divide it by 1 minus the tax rate. So the tax equivalent yield = .05/(1-.20) = .0625 or 6.25%.

Weekly study questions are from Solomon’s industry-leading Online Exam Simulator.

Study Question of the Week: January 2, 2014 Edition

This week’s study question from the Solomon Online Exam Simulator question database is now available. Relevant to the Series 6, Series 7, Series 62, Series 79, and Series 82. –ANSWER POSTED– Continue reading

This week’s study question from the Solomon Online Exam Simulator question database is now available.

Study ? of the Week

Question (Relevant to the Series 6, Series 7, Series 62, Series 79, and Series 82): 

10 bond points on a corporate bond is equivalent to:

Answers:

A. $10

B. $100

C. $1,000

D. 10% of a bond’s current value

Correct Answer: B. $100

Rationale: A “point” is an abbreviated term for “one percentage point” of the par value. With regards to corporate bonds, it generally refers to $10 increments of a $1,000 par value bond’s price.

Weekly study questions are from Solomon’s industry-leading Online Exam Simulator.