Finra Exam Series-7 Topic 5 Question 80 Discussion

Actual exam question for Finra's Series-7 exam

Question #: 80
Topic #: 5

Bubba buys a 5% municipal bond maturing in 15 years that is trading at a market price of 85 . What is the nominal yield?

A5.88%

B5.1%

C5.00%

Dcannot be determined

Show Suggested Answer

Suggested Answer: B

deductions from gross income to offset lower value of equipment. Depreciation is the deduction of costs for capital assets as their value declines.

by Daniel at Jan 24, 2024, 03:20 PM

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Eveline

2 months ago

I'm with Rodolfo on this one. The nominal yield has to be higher than the coupon rate to account for the discount. A) 5.88% is the only answer that makes sense to me.

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Audrie

1 months ago

I'm not sure, but A) 5.88% does seem like the most logical choice.

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Lashandra

2 months ago

I think you're right, the nominal yield should be higher than the coupon rate. A) 5.88% makes sense.

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Wilda

2 months ago

I agree with you, A) 5.88% seems to be the correct answer.

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Haha, Yoko's got a point. Maybe the real answer is D) cannot be determined, because we don't know the actual coupon rate of the bond. For all we know, it could be 6% and the market price is just really low for some reason.

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Kendra

1 months ago

True, it's always important to consider all factors when calculating yields.

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Leanna

1 months ago

True, but without knowing the actual coupon rate, it's hard to say for sure.

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Pamella

1 months ago

But wouldn't it be safe to assume that the nominal yield is closer to the market price of 85?

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Mickie

1 months ago

That's a good point, but the market price does affect the overall yield of the bond.

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Nada

2 months ago

But wouldn't the nominal yield just be the coupon rate of 5% regardless of the market price?

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Jina

2 months ago

I think you're right, D) cannot be determined seems like the most logical choice.

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Hyun

3 months ago

I think you're right, D) cannot be determined seems like the most logical choice.

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Yoko

3 months ago

Wait, this is a trick question! Since I'm the one who bought the bond, the answer should be C) 5.00%. Why would I buy a bond with a higher yield than the coupon rate? That doesn't make any sense.

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Nieves

3 months ago

I'm pretty sure the answer is A) 5.88%. The nominal yield should be the coupon rate divided by the market price, which in this case is 5% / 0.85 = 5.88%.

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Rodolfo

3 months ago

Okay, let's think this through step-by-step. The bond is trading at a market price of 85, which means it's priced at a discount. The nominal yield should be higher than the coupon rate to account for the discount.

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