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32. A low coupon corporate bond will likely (a) have a higher intrinsic value than a...

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.

Solutions

Expert Solution

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.


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