Question

In: Finance

Ken T. Ucky buys a municipal bond yielding 5.95%. Ken's marginal federal income tax rate is...

Ken T. Ucky buys a municipal bond yielding 5.95%. Ken's marginal federal income tax rate is 18.88%. If Ken receives $7,892.00 in interest payments in 2014, how much (dollar amount) does Ken owe in federal income taxes for 2014 (related to the interest payment)?

$0.00

$1,490.00

$469.57

$377.78

Question 261 pts

Wesley Consin owns 100 shares if WIN stock. Wes purchased the stock a year ago for $1 per share. The stock is currently selling for $4 per share. Wes decides to sell a call on WIN with a strike price of $4.00. The premium is $0.50. A month later, WIN stock is still at $4 per share. The option expires without being exercised. How much (total) did Wes earn on this transaction (not counting fees / commissons)?

$0.00

$50.00

$300.00

$400.00

Question 271 pts

Duke B. Deville sees that WIN stock is trading at $90 per share. Duke writes (sells) a naked call on WIN with a strike price of $92.00. Duke collects a premium of $0.85 on the transaction. WIN's stock price goes up to $110 per share by the expiration date of the option. Calculate Duke's total gains/losses from this transaction:

Duke gains $2,000.00 on the transaction

Duke gains $2,085.00 on the transaction

Duke loses $2,000.00 on the transaction

Duke loses $2,085.00 on the transaction

Duke loses $1,715.00 on the transaction

Question 281 pts

Ken T. Ucky believes that WIN will see a dramatic increase in stock price in the near term. WIN is currently trading at $38 per share. Ken believes that WIN will go as high as $40 per share. Ken buys a call option on WIN with a strike price of $38.00. The premium Ken pays is $1.00. At expiration, WIN has not increased it's share price (it turns out, WIN's stock was fundamentally flawed, relying too much on the company's interior strength combined with a little flash and sizzle...their competitors, meanwhile, gained ground by being good overall companies and by focusing on both external and internal things that really mattered). WIN is still sitting at a price of $38.00. The option expires worthless. Instead of making a lot of money and enjoying his 'one shining moment,' how much money does Ken lose on this bitter, bitter, unforeseeable, painful, and totally unforgettable transaction?

$1.00

$100.00

$200.00

$3,800 and a place in history

$4,000 and immortalization in the 'hall of fame'

Solutions

Expert Solution

Ken T. Ucky buys a municipal bond yielding 5.95%. Ken's marginal federal income tax rate is 18.88%. If Ken receives $7,892.00 in interest payments in 2014, how much (dollar amount) does Ken owe in federal income taxes for 2014 (related to the interest payment)?

The correct answer is the first option $ 0.00

Municipal bonds are tax exempted.

------------------------------------------------

Question 261 pts

Wesley Consin owns 100 shares if WIN stock. Wes purchased the stock a year ago for $1 per share. The stock is currently selling for $4 per share. Wes decides to sell a call on WIN with a strike price of $4.00. The premium is $0.50. A month later, WIN stock is still at $4 per share. The option expires without being exercised. How much (total) did Wes earn on this transaction (not counting fees / commissons)?

The correct answer is the second option $ 50.00

Earning on the transaction = Call premium x nos. of shares = $ 0.5 x 100 = $ 50.00

--------------------------------------------

Question 271 pts

Duke B. Deville sees that WIN stock is trading at $90 per share. Duke writes (sells) a naked call on WIN with a strike price of $92.00. Duke collects a premium of $0.85 on the transaction. WIN's stock price goes up to $110 per share by the expiration date of the option. Calculate Duke's total gains/losses from this transaction:

Duke's total gains/losses from this transaction = C - max (S - K, 0) x N = 0.85 - max (110 - 92, 0) x 100 = - $ 1,715.00

Hence, the correct answer is the last option showing : Duke loses $1,715.00 on the transaction

-----------------------------

Question 281 pts

Ken T. Ucky believes that WIN will see a dramatic increase in stock price in the near term. WIN is currently trading at $38 per share. Ken believes that WIN will go as high as $40 per share. Ken buys a call option on WIN with a strike price of $38.00. The premium Ken pays is $1.00. At expiration, WIN has not increased it's share price (it turns out, WIN's stock was fundamentally flawed, relying too much on the company's interior strength combined with a little flash and sizzle...their competitors, meanwhile, gained ground by being good overall companies and by focusing on both external and internal things that really mattered). WIN is still sitting at a price of $38.00. The option expires worthless. Instead of making a lot of money and enjoying his 'one shining moment,' how much money does Ken lose on this bitter, bitter, unforeseeable, painful, and totally unforgettable transaction?

The loss is = Call premium paid x Number = $ 1 x 100 = $ 100

Hence the correct answer is the second option showing $ 100.00


Related Solutions

In 1986, the U.S. federal income tax system changed marginal tax rates so that the marginal...
In 1986, the U.S. federal income tax system changed marginal tax rates so that the marginal tax rate fell from 50 to 33 percent. Given the fact that employment based health insurance is tax exempted, how will this affect the demand for health insurance for employees with compensation of $6000 a month and cost of insurance being $100? Support your answer with calculations.
1a.An investor is in the 28 percent federal tax bracket. For this investor, a municipal bond...
1a.An investor is in the 28 percent federal tax bracket. For this investor, a municipal bond paying 4 percent interest is equivalent to a corporate bond paying ________ interest. A. 11.79 percent B. 10.17 percent C. 9.08 percent D. 9.68 percent E. 5.56 percent 1b. Which of the following situations would require a decrease in the coupon rate for a bond selling at par? A. The addition of a call provision B. The addition of a convertibility option C. The...
ABC Corp's combined marginal state, local, and federal tax rate was 35%. The 10-year Treasury bond...
ABC Corp's combined marginal state, local, and federal tax rate was 35%. The 10-year Treasury bond rate is 2% and the borrowing rate for companies exhibiting similar levels of creditworthiness is 6%. The historical risk premium for stocks over the risk free rate of return is 5.5%. The firm's beta was estimated to be 1.1. The firm's debt to equity ratio is 20%. The after-tax cost of debt of the firm is _____ The cost of equity of this firm...
Consider the marginal tax rate (denoted t). It was noted in class that if t rises:...
Consider the marginal tax rate (denoted t). It was noted in class that if t rises: a. the spending multiplier with taxes will fall and there will be more output variability b. the spending multiplier with taxes will rise and there will be less output variability c. the spending multiplier with taxes will fall and there will be less output variability d. the spending multiplier with taxes will rise and there will be more output variability
31. A Treasury bond paid $100 in interest income to an individual whose federal tax rate...
31. A Treasury bond paid $100 in interest income to an individual whose federal tax rate       is 25% and whose state tax rate is 5%. What dollar amount of taxes is owed by this       person?                                                                                                                                                                                 32. Calculate the maximum price an investor should pay for a common stock assuming:       last period’s dividend was $4, the growth rate is 5%, the required rate of return is       9%.                                                                                                                                                                                                                                                                                       33. A company postponed paying a preferred stock dividend...
Is an increase in the marginal income tax rate reflected by a shift in the after-tax...
Is an increase in the marginal income tax rate reflected by a shift in the after-tax supply of labor or a movement along the supply curve when the pretax wage rate is on the vertical axis? Explain your answer. 1. A shift in the supply curve. An increase in the marginal tax rate reduces wages, so workers will need to increase the number of hours they work at every wage rate. 2. A shift in the supply curve. An increase...
Tatun Inc. pays state income tax at a 5% rate and federal income tax at a...
Tatun Inc. pays state income tax at a 5% rate and federal income tax at a 21% rate. Tatun recently engaged in a transaction in Mexico, which levied a $25,200 income tax on the transaction. Tatun's pretax net income for the current year is $1,913,900. Compute Tatun's total income tax burden assuming that: The Mexican tax is nondeductible for state and federal tax purposes. The Mexican tax is deductible for state and federal tax purposes.
A tax-exempt municipal bond with a coupon rate of 7.00% has a market price of 98.35%...
A tax-exempt municipal bond with a coupon rate of 7.00% has a market price of 98.35% of par. The bond matures in 8.00 years and pays semi-annually. Assume an investor has a 38.00% marginal tax rate. The investor would prefer otherwise identical taxable bond if it's yield to maturity was more than _____% Answer format: Percentage Round to: 2 decimal places (Example: 9.24%, % sign required. Will accept decimal format rounded to 4 decimal places (ex: 0.0924
A tax-exempt municipal bond with a coupon rate of 6.00% has a market price of 99.18%...
A tax-exempt municipal bond with a coupon rate of 6.00% has a market price of 99.18% of par. The bond matures in 13.00 years and pays semi-annually. Assume an investor has a 35.00% marginal tax rate. The investor would prefer otherwise identical taxable bond if it's yield to maturity was more than _____% (round to 2 decimal places).
A tax-exempt municipal bond with a coupon rate of 8.00% has a market price of 98.03%...
A tax-exempt municipal bond with a coupon rate of 8.00% has a market price of 98.03% of par. The bond matures in 10.00 years and pays semi-annually. Assume an investor has a 22.00% marginal tax rate. The investor would prefer otherwise identical taxable bond if it's yield to maturity was more than _____% Caspian Sea Drinks needs to raise $50.00 million by issuing bonds. It plans to issue a 15.00 year semi-annual pay bond that has a coupon rate of...
ADVERTISEMENT
ADVERTISEMENT
ADVERTISEMENT