Debt issued by Drumpt corporation currently yields 11%. A municipal
bond of equal risk currently yields...
Debt issued by Drumpt corporation currently yields 11%. A municipal
bond of equal risk currently yields 6%. At what marginal tax rate
would an investor be indifferent between the two bonds? Please
input the answer in decimal format.
Solutions
Expert Solution
Tax rate at which the investor would be indifferent:
Debt issued by Drumpt corporation currently yields 11%. A municipal
bond of equal risk currently yields 6%. At what marginal tax rate
would an investor be indifferent between the two bonds? Please
input the answer in decimal format.
Corporate bonds issued by Johnson Corporation currently yield
8%. Municipal bonds of equal risk currently yield 5.5%. At what tax
rate would an investor be indifferent between these two bonds?
Round your answer to two decimal places.
Personal After-Tax Yield
Corporate bonds issued by Johnson Corporation currently yield
10.5%. Municipal bonds of equal risk currently yield 5.5%. At what
tax rate would an investor be indifferent between these two bonds?
Round your answer to two decimal places.
___
Corporate After-Tax Yield
The Shrieves Corporation has $25,000 that it plans to invest in
marketable securities. It is choosing among AT&T bonds, which
yield 9.75%, state of Florida muni bonds, which yield 6% (but are
not taxable), and AT&T...
A municipal bond yields 6.75%.
A corporate bond on comparable credit quality and maturity
yields 9.0%.
At what marginal tax rate would an investor be indifferent
between the two bonds?
Based on your answer, explain why investors in the highest
tax-bracket are more inclined to invest in municipal bonds than
investors in lowest tax-bracket.
Suppose currently 10-year Treasury bond yields 1.2% and
10-year municipal bond offers 0.8% yield. Also, your federal income
tax rate is 40% and state income tax rate is 14%. Calculate the
risk premium (spread) of this municipal bond.
Show calc and steps
- Earley Corporation issued perpetual preferred stock with a 12%
annual dividend. The stock currently yields 10%, and its par value
is $100. Round your answers to the nearest cent. What is the
stock's value? Suppose interest rates rise and pull the preferred
stock's yield up to 13%. What is its new market value?
- Farley Inc. has perpetual preferred stock outstanding that
sells for $36 a share and pays a dividend of $5.00 at the end of
each year....
Problem 7-11
Bond yields
One year ago Carson Industries issued a 10-year, 15% semiannual
coupon bond at its par value of $1,000. Currently, the bond can be
called in 6 years at a price of $1,075, and it now sells for
$1,180.
What is the bond's nominal yield to maturity? Do not round
intermediate calculations. Round your answer to two decimal
places.
%
What is the bond's nominal yield to call? Do not round intermediate
calculations. Round your answer to...
Which of the following best describes a municipal bond?
A bond issued by quasi-government securities.
A bond issued by a multilateral agency like the International
Monetary Fund.
A bond issued whose sources for paying interest often include
the cash flows of the project the bond issue is financing or
special taxes and fees established for that purpose.
A bond issued internationally within the jurisdiction of the
country whose currency the bond is denominated.
A bond issued internationally, outside the jurisdiction...
Suppose that you consider investing in a municipal bond issued
by the Cleveland County or a corporate bond. The municipal bond
yields 5.75 percent per year. If you are in the 25 percent tax
bracket, what is equivalent taxable yield on the municipal
bond?
A
4.31%
B
5.75%
C
6.76%
D
7.67%