A newly issued bond pays its coupons once annually. Its coupon rate is 4%, its maturity...

A newly issued bond pays its coupons once annually. Its coupon rate is 4%, its maturity is 10 years, and its yield to maturity is 7%. a . Find the holding-period return for a 1-year investment period if the bond is selling at a yield to maturity of 6% by the end of the year. b . If you sell the bond after 1 year, what taxes will you owe if the tax rate on interest income is 35% and the tax rate on capital gains income is 30%? The bond is subject to original-issue discount tax treatment. Can you please help with question B I do not understand.

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Answer is attached below. Any doubts on point b is welcomed. i will explain you.

jeff jeffy answered 1 year ago

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