Baran

 The correct answer is C

The dirty price of a bond equals the quoted price plus accrued interest. If an issuer has defaulted, the bond trades without interest and is said to trade flat. When a security trades ex-coupon, the buyer pays the clean price, which is the quoted price without accrued interest. The dirty price of a bond is greater than the clean price by the amount of the accrued interest. (If the bond trades on a coupon date, the dirty price will equal the clean price.)

Baran

8、Peter Stone is considering buying a $100 face value, semi-annual coupon bond with a quoted price of 105.19. His colleague points out that the bond is trading ex-coupon. Which of the following choices best represents what Stone will pay for the bond?

A) $105.19 plus accrued interest.
 
 
B) $105.19.
 
 
C) $105.19 minus accrued interest.
 
 
D) $105.19 minus the coupon payment.

Baran

 The correct answer is B

Since the bond is trading ex-coupon, the buyer will pay the seller the clean price, or the price without accrued interest. So, Stone will pay the quoted price. The choice $105.19 plus accrued interest represents the dirty price (also known as full price). This bond would be said to trade cum-coupon.

Baran

5、If the issuer of a bond is in default, the bond will be trading:

A) registered.
 
B) flat.
 
C) on accrual.
 
D) off the market.

Baran

The correct answer is B

If an issuer of a bond is in default (i.e., it has not been making periodic contractual coupon payments), the bond is traded without accrued interest and is said to trade flat.
A registered bond is a bond whose owner's name is recorded as a book entry on the books of the issuer or its transfer agent.

Baran

6、In the context of bonds, accrued interest:

A) applies only to bonds with semi-annual or quarterly coupon payments.
 
 
B) equals interest earned from the previous coupon to the sale date.
 
 
C) is discounted along with other cash flows to arrive at the dirty, or full price.
 
 
D) covers the part of the next coupon payment not earned by seller.

Baran

 The correct answer is B

This is a correct definition of accrued interest on bonds. The other choices are false. Accrued interest can occur on all bonds with periodic coupon payments, not just bonds with payment frequencies greater than one year. Accrued interest is not discounted when calculating the price of the bond. The statement, "covers the part of the next coupon payment not earned by seller," should read, "…not earned by buyer."

Baran

7、The dirty, or full, price of a bond:

A) applies if an issuer has defaulted.
 
 
B) is paid when a security trades ex-coupon.
 
 
C) equals the present value of all cash flows, plus accrued interest.
 
 
D) is usually less than the clean price.

Baran

The correct answer is C

Accrual bonds, unlike zero-coupon bonds, do not always sell at a discount to face value. The interest accrues forward and thus the bonds are likely to sell for more than face value.

Baran

3、Assume a bond's quoted price is 105.22 and the accrued interest is $3.54. The bond has a par value of $100. What is the bond's clean price?

A) $100.00.
 
B) $103.54.
 
C) $105.22.
 
D) $108.76.