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11.
An investor whose marginal tax rate is 35% is analyzing a tax-exempt bond offering a yield of 5.40%. The tax-equivalent yield of the bond is closest to:
A. 8.31%.
B. 3.51%.
C. 6.94%.



Ans: A;
C is correct because
Tax-equivalent yield
= Tax-exempt yield/(1 – Marginal tax rate)
= 5.40%/(1 – 0.35) = 8.31%

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12.
A U.S. investor has purchased a tax-exempt 10-year municipal bond at a yield of 3.75% which is 100 basis points less than the yield on a 10-year option-free U.S. Treasury. If the investor’s marginal tax rate is 33.5%, then taxable equivalent yield and the yield ratio is closest to:
Taxable equivalent yield Yield ratio
A. 7.14 0.79
B. 5.64 0.79.
C. 5.64 1.19.


Ans: B;
Taxable equivalent yield
=3.75%/ (1-33.5%)
=5.64
Yield ratio
= (yield on tax-exempt bond) / (yield of US Treasury)
=3.75% / (3.75%+ 1%)
= 3.75 / 4.75
=0.79

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12.
A U.S. investor has purchased a tax-exempt 10-year municipal bond at a yield of 3.75% which is 100 basis points less than the yield on a 10-year option-free U.S. Treasury. If the investor’s marginal tax rate is 33.5%, then taxable equivalent yield and the yield ratio is closest to:
Taxable equivalent yield Yield ratio
A. 7.14 0.79
B. 5.64 0.79.
C. 5.64 1.19.


Ans: B;
Taxable equivalent yield
=3.75%/ (1-33.5%)
=5.64
Yield ratio
= (yield on tax-exempt bond) / (yield of US Treasury)
=3.75% / (3.75%+ 1%)
= 3.75 / 4.75
=0.79

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14.
Recent economic trend suggests that the economy is increasingly likely to enter a recession stage. What is the most likely impact on the yields of lower-quality corporate bonds and on credit spreads of lower-quality versus higher-quality corporate bonds?
A. One will increase and one will decrease.
B. Both will increase.
C. Both will decrease.



Ans: B;
Yields of lower quality increases: During economic contractions, the probability of default increases for lower- quality issues and their yields increase.
Credit spreads increases: when an economic contraction is likely, investors tend to sell low-quality issues and buy high-quality issues, causing credit spreads of lower quality versus higher quality bonds to widen.

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15.
Larger size debt issues normally have:
A. greater yield spread.
B. the same yield spread with smaller size debt issues.
C. lower yield spread.



Ans: C;
C is correct because larger issues normally have greater liquidity because they are more actively traded in the secondary market and therefore have lower yield spreads when compared with smaller issues.

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16.
The yield on a U.S. Treasury STRIPS security is also known as the Treasury:
A. spot rate.
B. forward rate.
C. yield spread.


Ans: A;
Spot rates are the appropriate discount rates for cash flows that come at different points in time; while yield to maturity is the single discount rate that makes the present value of a bond’s promised cash flows equal to its market price. Therefore, yield to maturity is flat while spot rate is not flat because the discount rate for a payment that comes one year from now is not necessarily the same discount rate that should be applied to a payment that comes five years from now.
Conceptually, spot rates are the discount rates for zero-coupon bonds, securities that have only a single cash flow at a future date.
A is correct because a STRIPS security is a zero-coupon bond with no default risk and therefore represents the appropriate discount rate for a cash flow certain to be received at the maturity date for the STRIPS.

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上一主题:CFA Level I:Fixed Income - Introduction to the Valuation of Debt Securities 习题精选
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