Exam 8006 Topic 5 Question 33 Discussion
Actual exam question for PRMIA's 8006 exam
Question #: 33
Topic #: 5
Question #: 33
Topic #: 5
Which of the following statements is true:
I. On-the-run bonds are priced higher than off-the-run bonds from the same issuer even if they have the same duration.
II. The difference in pricing of on-the-run and off-the-run bonds reflects the differences in their liquidity III. Strips carry a coupon generally equal to that of similar on-the-run bonds IV. A low bid-ask spread indicates lower liquidity
I. On-the-run bonds are priced higher than off-the-run bonds from the same issuer even if they have the same duration.
II. The difference in pricing of on-the-run and off-the-run bonds reflects the differences in their liquidity III. Strips carry a coupon generally equal to that of similar on-the-run bonds IV. A low bid-ask spread indicates lower liquidity
Suggested Answer: B Vote an answer
Explanation
On-the-run bonds yield less, and therefore are priced higher than similar off-the-run bonds. The difference in their pricing reflects the fact that on-the-run bonds are more liquid than off-the-run bonds. Therefore statements I and II are correct. Bonds are on-the-run when they are issued, and change hands frequently, and over time as they become 'seasoned', newer bonds take their place as on-the-run bonds making them off-the-run.
Strips are zero coupon instruments, and do not carry any coupon. Therefore statement III is not correct.
A lower bid-ask or bid-offer spread indicates lower transaction costs and is a result of greater liquidity. A higher bid-ask spread results for less liquid securities. Therefore statement IV is not correct.
On-the-run bonds yield less, and therefore are priced higher than similar off-the-run bonds. The difference in their pricing reflects the fact that on-the-run bonds are more liquid than off-the-run bonds. Therefore statements I and II are correct. Bonds are on-the-run when they are issued, and change hands frequently, and over time as they become 'seasoned', newer bonds take their place as on-the-run bonds making them off-the-run.
Strips are zero coupon instruments, and do not carry any coupon. Therefore statement III is not correct.
A lower bid-ask or bid-offer spread indicates lower transaction costs and is a result of greater liquidity. A higher bid-ask spread results for less liquid securities. Therefore statement IV is not correct.
by Vita at May 16, 2026, 11:48 AM
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