In: Finance
32.
A low coupon corporate bond will likely
(a) have a higher intrinsic value than a similar high-coupon bond.
(b) have a lower rating.
(c) be selling at a premium.
(d) have no tax liability on eventual capital gains.
33.
An actively traded corporate bond will likely
(a) have a large bid-ask spread.
(b) be rated lower by Moody's.
(c) pose a large risk for the dealer
(d) have a lower yield-to-maturity than a less liquid bond.
Answers-
Q 32)
The correct Option is b. have a lower rating as it has higher interest rate risk.
Option a is incorrect As Bond Value = PV of coupons + PV
of par. therefre high coupon bond will ae hiigher intrinsic
value
Option c . low coupon bond will sell at a discount
option d is low coupon bond will have tax liability
Q 33)
The correct Option is d. have a lower yield-to-maturity than a less liquid bond. because of liquidity premium
Option a will have smaller bid-ask spread
Option b will have higher rating by MOODy's
Option c will have lower risk for dealer.