Question

"A municipal bond dealer quotes an 8 year 6% bond trading in the secondary market on a 4% basis. After considering all taxes, the customer's yield will be:"

Answer 1

Answer:

more than 4% but less than 6%

Explanation:

Given that the new quotes for a 4% bond trading in the secondary market are higher than 4% which is actually a 6% basis, thus, it is expected that the customer's yield to be greater than the initial 4%. However, given that, we are looking for the customer's yield after-tax, then the net customer's yield will be less than 6%.

Therefore, the right answer is that the customer's yield will be MORE THAN 4% but LES THAN 6%.