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Bubba buys a 5% bond that matures in 15 years with a 5.10 basis. How much did he pay for the bond?
Suggested Answer: B
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98.96. A calculator is not required for this. Even Bubba knows the bond is obviously trading at a slight discount by yielding 5.10% instead of the coupon rate of 5%. If the yield was the same as the coupon rate, the price is 100.00.
11 comments · newest first
PH
Phuong
1 year ago
5% bond with a 5.10 basis? Interesting combo!
LA
Latricia
1 year ago
I thought bonds were usually at par or above.
MA
Mariko
1 year ago
Wait, is it really that low? Sounds off to me.
BE
Becky
1 year ago
Definitely B, makes sense with the basis.
KA
Kallie
1 year ago
He probably paid around 98.96 for that bond.
ZO
Zona
1 year ago
I’m confused about whether the bond price should be above or below par. I think I need to double-check how the basis affects the price calculation.
CH
Charlette
1 year ago
I feel like the answer should be lower than 100 since the basis is higher than the coupon rate. Maybe it's B?
PA
Paz
1 year ago
This seems similar to a practice question we did on bond pricing. I think the basis points might help us find the price, but I can't recall the exact formula.
IL
Iluminada
1 year ago
I remember something about calculating the price of a bond based on its yield and coupon rate, but I'm not entirely sure how to apply it here.
AL
Alisha
1 year ago
Optimizing the BGP route table by exporting IGP routes into BGP is a common technique, but I don't think it's considered a best practice. I'll rule that one out.
LA
Lauran
1 year ago
I'm pretty confident about this one. The key is to identify the false statement, which seems to be option C.