Problems of using the current yield as return measure

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Reference no: EM132064002

1. federal notes and bond are quoted on a price basis in points with one point showing 1% of the par value. These points are split in 32nd and can have a + sign. Thus, a quote of 88 – 17 + for a $10,000 face value bond shows a price of:

a. $8,833

b. $8,856.25

c. $8,816

d. $8,854.68

2. one of the problems of using the current yield as a return measure is:

a. it double counts the capital gains

b. time value of money is ignored in calculation

c. the capital loss is over emphasized

d. all of the above are true

3. when an accrual bond is created from a CMO tranche, the withheld interest payments can be used to create another class of bond that is normally called a ……………… bond.

Reference no: EM132064002

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