Finra Exam SIE 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?

A$400

B$450

C$500

D$650

Show Suggested 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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Corinne

3 months 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

2 months ago

D) $650

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Yvonne

3 months ago

C) $500

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Leota

3 months ago

B) $450

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Joseph

3 months ago

A) $400

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Georgeanna

3 months 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

4 months ago

Wait, if the current yield is 5.0%, then the interest should be $500. Piece of cake!

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Lynsey

3 months ago

Wait, if the current yield is 5.0%, then the interest should be $500. Piece of cake!

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Aracelis

3 months ago

The correct answer is C) $500.

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Gaynell

3 months ago

D) $650

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Delmy

3 months ago

C) $500

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Lavonna

3 months ago

B) $450

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Yong

3 months ago

A) $400

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Bettye

4 months ago

I'm not sure, but I think the tax-equivalent yield is not relevant for this calculation

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Rene

4 months 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

3 months ago

Yes, the tax-equivalent yield being higher than the YTM indicates a higher expected return.

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Renay

4 months ago

I agree, option B for $450 seems correct.

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Kris

4 months ago

I agree with Cathern, the current yield is 5% so it should be $450

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Cathern

4 months ago

I think the answer is $450 (B)

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Thad

4 months ago

The coupon rate is clearly 4.0%, so the answer should be $400. Anything else is just nonsense.

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Shawn

3 months ago

Exactly, so the answer should be $400.

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Isabella

3 months 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

3 months ago

But what about the current yield and yield to maturity?

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Jeanice

3 months ago

I think the answer is $400 because the coupon rate is 4.0%.

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