Tag: yield

Study Question of the Month – November

This month’s study question from the Solomon Online Exam Simulator question database is now available. Relevant to the Series 6, 7, 62, 65 and 79. –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 6, Series 7, Series 62, Series 65 and Series 79): A few years back ABC Corporation issued callable bonds yielding 6%. The call price is 104, and the call protection period has ended. The bonds are trading at 105 today. Which of the following are true:

I. The current yield on these bonds is 6.3%

II. The current yield on these bonds is 5.7%

III. There is a good chance the bonds will be called

IV. There is a good chance the bonds will not be called

Answers: 

A. I and III

B. I and IV

C. II and III

D. II and IV

Correct Answer: C. II and III

Rationale: The formula for calculating current yield is the annual interest on the bond ($60) divided by the current price of the bond ($1050) which is equal to 5.7%. Because ABC can finance the debt at a lower interest rate than they are currently paying there is a good chance that they will call the bonds.

Congratulations Stephen Z., this month’s Study Question of the Month winner!

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

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: May 14, 2014 Edition

This week’s study question from the Solomon Online Exam Simulator question database is now available. Relevant to the Series 7, Series 51, Series 52, Series 53, Series 62, Series 79, Series 82, and Series 99. –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 51, Series 52, Series 53, Series 62, Series 79, Series 82, and Series 99): 

Why would a bond issuer decide to issue an advance refunding bond?

Answers:

A. Because interest rates have risen

B. To lock into the current lower interest rates

C. Because the CPI has gone up

D. To try to increase the yield on their bond issue

Correct Answer: B. To lock into the current lower interest rates

Rationale: A bond refunding is the replacement of existing bonds with new “refunding“ bonds. The issuer of refunding bonds seeks to lower its interest payments by paying off its previously issued (refunded) bonds with newly issued bonds that pay a lower interest rate. An advance refunding bond refers to one in which more than 90 days must elapse before the refunded bond can be retired. An issuer typically uses advance refunding when interest rates have dropped significantly, but the next call date is not in the near future. An advance refunding bond allows the issuer to lock in the lower interest rates now without risking that they rise before the call date arrives.

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

Exam Alert: MSRB changes RTRS Facility rules

On March 20, 2012, the SEC approved amendments to the MSRB’s operational rules for the Real-time Transaction Reporting System (RTRS). The amendments have varying effective dates. The changes include:
-modified hours of operation
-calculation and dissemination of yields on inter-dealer transactions
-removal of rarely-used transaction reporting requirements
-dealer submission of prices on inter-dealer transactions
-increased dissemination of customer transactions Continue reading

On March 20, 2012, the SEC approved amendments to the MSRB’s operational rules for the Real-time Transaction Reporting System (RTRS).  The amendments have varying effective dates.  The changes include:

-modified hours of operation

-calculation and dissemination of yields on inter-dealer transactions

-removal of rarely-used transaction reporting requirements

-dealer submission of prices on inter-dealer transactions

-increased dissemination of customer transactions

 

The following change is effective March 20, 2012:

-RTRS will accept and disseminate any trade reports received between 6:00 AM and 9:00 PM.  This is an increase from the prior RTRS “Window” Hours, which were from 7:00 AM to 8:00 PM.

 

The following changes are effective April 30, 2012:

-RTRS will be reprogrammed to calculate and disseminate the yield for most inter-dealer transactions.  Currently, RTRS only reports the dollar prices of inter-dealer transactions, but reports both the dollar price and yield for customer trades.

 

-MSRB rules will no longer require reporting additional details about certain trades to RTRS in two situations:

1. The identity of an “intermediate dealer” (a broker that passes trade data from an effecting broker to a clearing broker) will no longer need to be included on trade reports.

2. Trades that are reported with the “away from the market – extraordinary settlement” special condition indicator will instead be reported with the generic “away from the market” indicator.

 

The following changes are effective on a date to be announced by the MSRB, but not later than November 30, 2012:

-Dealers will be required to report the contractual dollar price of their inter-dealer transactions.  Currently, RTRS calculates a price based on the final money, par amount, and accrued interest submitted to the DTCC (Depository Trust & Clearing Corporation).  This change is to avoid RTRS errors that occur when the system tries to calculate the price of a trade and the par value of the traded bonds is a value other than $1,000.

 

-RTRS will disseminate trade reports for customer transactions if the dealer-reported price and the RTRS-calculated price are within one dollar of each other.  Currently, if there is any difference between the two prices, RTRS returns an error to the dealers and does not disseminate the trade.

 

Source: MSRB Notice 2012-15

This alert applies to the Series 7.