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The interest rate risk premium is the:


A) additional compensation paid to investors to offset rising prices.
B) compensation investors demand for accepting interest rate risk.
C) difference between the yield to maturity and the current yield.
D) difference between the market interest rate and the coupon rate.
E) difference between the coupon rate and the current yield.

F) All of the above
G) C) and E)

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A Treasury bond is quoted as 99.6325 asked and 99.1250 bid. What is the bid-ask spread in dollars on a $10,000 face value bond?


A) $25.38
B) $5.75
C) $5.08
D) $50.75
E) $2.54

F) B) and D)
G) B) and C)

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The semiannual, 8-year bonds of Alto Music are selling at par and have an effective annual yield of 8.6285 percent. What is the amount of each interest payment if the face value of the bonds is $1,000?


A) $41.50
B) $42.25
C) $43.15
D) $85.00
E) $86.29

F) C) and D)
G) A) and E)

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Al is retired and his sole source of income is his bond portfolio. Although he has sufficient principal to live on, he only wants to spend the interest income and thus is concerned about the purchasing power of that income. Which one of the following bonds should best ease Al's concerns?


A) 6-year coupon bonds
B) 5-year TIPS
C) 20-year coupon bonds
D) 5-year municipal bonds
E) 7-year income bonds

F) B) and E)
G) A) and B)

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