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Submitted By nurymele
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FIN500 Assignment 2 (individual work) Total points: 8

Part I.

1. Which of the following is true regarding U.S. Government Agency Securities?
B. They do not carry the federal government's full faith and credit guarantee. (p. 184)

2. Which of the following terms means that during periods when interest rates change substantially, bondholders experience distinct gains and losses in their bond investments?
B. interest rate risk (p. 190)

3. Which of the following is an important advantage to the issuer of a bond with a call provision?
D. They allow for refinancing opportunities. (p. 195)

4. Which of the following statements is true?
D. Interest payments paid to municipal bond holders are not taxed at the federal level, or by the state for which the bond is issued. (p. 196)

5. Credit Risk and Yield Rank order from highest credit risk to lowest risk the following bonds, with the same time to maturity, by their yield to maturity: JM Corporate bond with yield of 4.25 percent, IB Corporate bond with yield of 6.49 percent, TC Corporate bond with yield of 10.76 percent, and B&O Corporate bond with a yield of 9.99 percent.
C. TC bond, B&O bond, IB bond, JM bond

High yield = high credit risk

6.TIPS Interest and Par Value A 2 1/2 percent TIPS has an original reference CPI of 170.4. If the current CPI is 205.7, what is the current interest payment and par value of the TIPS?
D. $1207.16, $15.09, respectively

par value = 205.7/170.4 * $1,000 = $1,207.16 interest payment = ½ × 2.5% * $1,207.16 = $15.09

7.Bond Quotes Consider the following three bond quotes; a Treasury note quoted at 87:25, and a corporate bond quoted at 102.42, and a municipal bond quoted at 101.45. If the Treasury and corporate bonds have a par value of $1,000 and the municipal bond has a par value of $5,000, what is the price of these three bonds in dollars?
C.

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