Option B, I and IV
i.e 102 and 7.50 Net would be considered "fair and reasonable" under MSRB rules.
Explanation:
The dealer buys 6% bonds on an equal footing. When reselling bonds, the premium it receives must be equal and sensible. A price of 104 is equivalent to 4 percent higher than average. This is definitely fairer than just a price of 112, which translates to a mark-up of 12 percent. To receive an "approximate" price for an income-based long-term commitments, break the coupon by the purpose.
There would be an average price of 6.00 cents bid on a 5.75% basis ,
6.00/5.75 = 1.043478 x $1,000 par = $1,043.48.
This is a rational improvement of roughly 4 percent over pair. A 6.00% note, then, would be sold at an average price at a yield of 4.00% of
6.00/4.00 = 1.50 x $1,000 par = $1,500.
This is a 50% improvement over the original, which is completely unreasonable.
