7. The price quotations of T Bonds in the WSJ show an ask price of 104.08 and a

Question

7. The price quotations of T Bonds in the WSJ show an ask price of 104.08 and a bid price of 104.04. As a seller of the bond what is the dollar price you expect to transact at? a. $1048.00 b. $1042.50 c. $1041.25 d. $1041.75 e. $1040.40 8. Which of the following securities is a money market instrument? a. T Note b. T Bond c. Municipal bond d. Commercial paper e. Mortgages 9. Fannie Mac and Freddie Mac were originated to provide a. b. c. d. e. A primary market for mortgage transactions Liquidity for the mortgage market. A primary market for farm loan transactions. Liquidity for the farm loan markets. A source of funds for government agencies. 10. For a taxpayer in the 25% marginal tax bracket, a 20 year municipal bond currently yielding 5.5% would offer an equivalent taxable yield of a. b. c. d. e. 7.33% 10.75% 5.5% 4.125% 7.88%

Explanation / Answer

7. Option E is correct.

As the seller would be selling at the bid price. Hence, $1000 x 104.04% = $1,040.40

8. Option D is correct.

Commercial Paper is the only one of the given options that is the money market instruments.

10. Equivalent Taxable Yield = R(tf)/(1- t)

= 5.5%/(1 - 0.25) = 7.33%

Option "A" is correct.

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