Question

24. Consider the following three stocks:

stock price number of shares outstanding

Stock A $40 200

Stock A $70 500

Stock A $10 600
Assume at these prices that the value-weighted index constructed with the three stocks is
490. What would the index be if stock B is split 2 for 1 and stock C 4 for 1?
A) 355 B) 430 C) 1000 D) 490 E) 265

34. A 5.5% 20-year municipal bond is currently priced to yield 7.2%. For a taxpayer in the 33% marginal tax bracket, this bond would offer an equivalent taxable yield of

A) 8.20% B) 4.82% C) 10.75% D) 11.40%

Can you write a specific explanation, please?

Answer 1

24 )

Value weighted index are not affecting on the stock split. so the anser will be Option D , 490

34 )

Currently price to yiled = 7.2 %

Marginal tax bracket = 33 %

Taxable Yield = ?

Currently price to yiled = Taxable Yield * ( 1 - Marginal tax bracket )

7.2 =Taxable yield * ( 1 - 0.33 )

7.2 = Taxable yield * 0.67

Taxable yield = 7.2 / 0.67

= 10.746 rounded to 10. 75%