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Finra SIE Exam - Topic 6 Question 2 Discussion

An investor owns $10,000 par value of a municipal bond with the following rates:4.0% coupon rate5.0% current yield4.5% yield to maturity (YTM)6.5% tax-equivalent yieldWhat amount of interest should the investor expect to receive each year?
A) $400
B) $450
C) $500
D) $650

Finra SIE Exam - Topic 6 Question 2 Discussion

Actual exam question for Finra's SIE exam
Question #: 2
Topic #: 6
[All SIE Questions]

An investor owns $10,000 par value of a municipal bond with the following rates:

4.0% coupon rate

5.0% current yield

4.5% yield to maturity (YTM)

6.5% tax-equivalent yield

What amount of interest should the investor expect to receive each year?

Show Suggested Answer Hide Answer
Suggested Answer: A

The annual interest on a bond is calculated based on the coupon rate and the bond's par value.

Coupon rate = 4.0%.

Annual interest = $10,000 (par value) 4.0% = $400.

A is correct because the coupon rate determines the annual interest.

B, C, and D are incorrect because they reflect incorrect calculations. The current yield, YTM, and tax-equivalent yield do not affect the bond's fixed coupon payments.


by Rickie at Feb 08, 2025, 03:28 PM

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Krystina
9 months ago
I thought it would be higher with those yields.
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Ona
9 months ago
The tax-equivalent yield is interesting, but it doesn't change the coupon amount.
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Raylene
10 months ago
Wait, are we sure about that? Seems low for a $10k bond.
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Nichelle
10 months ago
Totally agree, $400 is correct!
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Peggy
10 months ago
The coupon rate is 4.0%, so that's $400.
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Sheridan
10 months ago
Wait, does the tax-equivalent yield affect the interest amount? I’m a bit confused about how that plays into this question.
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Leila
10 months ago
I practiced a similar question, and I think the answer is definitely $400 since that's the standard calculation for coupon payments.
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Val
11 months ago
I'm not entirely sure, but I think the current yield might confuse things. I should focus on the coupon rate for the annual interest.
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Jody
11 months ago
I remember that the coupon payment is calculated by multiplying the coupon rate by the par value, so I think it should be $400.
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Lorrie
11 months ago
The tax-equivalent yield of 6.5% is throwing me off a bit. I'll need to remember how to use that to calculate the actual interest payment.
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Tom
11 months ago
Okay, I think I've got this. The coupon rate of 4.0% means the annual interest payment is $400. Now I just need to double-check that against the other yield information.
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Kerrie
11 months ago
Hmm, I'm a bit confused about the different yields listed. I'll need to think through how they relate to the annual interest payment.
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Rima
11 months ago
This looks like a straightforward interest calculation problem. I'll start by finding the annual interest payment based on the 4.0% coupon rate and the $10,000 par value.
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Corinne
1 year ago
Ah, the age-old question: how much can I milk out of my investments? I say we go with $650 and treat ourselves to a nice steak dinner!
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Eden
1 year ago
D) $650
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Yvonne
1 year ago
C) $500
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Leota
1 year ago
B) $450
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Joseph
1 year ago
A) $400
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Georgeanna
2 years ago
This is a tricky one, but I bet the answer is D. $650 just sounds right, you know? Who needs to do math when you can guess?
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Tomas
2 years ago
Wait, if the current yield is 5.0%, then the interest should be $500. Piece of cake!
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Lynsey
1 year ago
Wait, if the current yield is 5.0%, then the interest should be $500. Piece of cake!
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Aracelis
1 year ago
The correct answer is C) $500.
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Gaynell
1 year ago
D) $650
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Delmy
1 year ago
C) $500
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Lavonna
1 year ago
B) $450
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Yong
1 year ago
A) $400
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Bettye
2 years ago
I'm not sure, but I think the tax-equivalent yield is not relevant for this calculation
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Rene
2 years ago
Hmm, the tax-equivalent yield is 6.5%, which is higher than the YTM of 4.5%. Gotta be option B for $450.
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Valentine
1 year ago
Yes, the tax-equivalent yield being higher than the YTM indicates a higher expected return.
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Renay
2 years ago
I agree, option B for $450 seems correct.
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Kris
2 years ago
I agree with Cathern, the current yield is 5% so it should be $450
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Cathern
2 years ago
I think the answer is $450 (B)
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Thad
2 years ago
The coupon rate is clearly 4.0%, so the answer should be $400. Anything else is just nonsense.
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Shawn
1 year ago
Exactly, so the answer should be $400.
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Isabella
1 year ago
Those are different calculations, the question is asking for the amount of interest the investor should expect to receive each year.
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Stacey
1 year ago
But what about the current yield and yield to maturity?
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Jeanice
1 year ago
I think the answer is $400 because the coupon rate is 4.0%.
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