A company has purchased a bond at a price of $956. The par value of the...

A company has purchased a bond at a price of $956. The par value of the bond is $1,000 and the original term to maturity is five years. The applicable capital gains tax rate is 25%. Based on the information provided on the bond issue, the company:

A. will not need to pay any capital gains taxes on the maturity of the bond issue.

B. will need to declare capital gains of $44 at the maturity of the bond issue only.

C. will need to include $8.8 in taxable income every tax year for 5 years and declare a capital gain of $44 at maturity.

Solutions

Expert Solution

Bond is purchased at $956

Bond will be redeemed at par value of $1000, it would be consider at sale price for capital gain.

Capital Gain Tax is always payable on the period or event after it is been realized i.e., the sale date. Thus, the Capital gain of $44 ($1000 - $956) will need to declared at the maturity of bond only.

Thus, Option B

jeff jeffy answered 2 years ago

Next > < Previous

Related Solutions

There is a bond that has a quoted price of 94.023 and a par value of...

There is a bond that has a quoted price of 94.023 and a par value of $2,000. The coupon rate is 6.51 percent and the bond matures in 13 years. If the bond makes semiannual coupon payments, what is the effective annual interest rate?

There is a bond that has a quoted price of 97.695 and a par value of...

There is a bond that has a quoted price of 97.695 and a par value of $2,000. The coupon rate is 6.63 percent and the bond matures in 17 years. If the bond makes semiannual coupon payments, what is the YTM of the bond?

There is a bond that has a quoted price of 105.957 and a par value of...

There is a bond that has a quoted price of 105.957 and a par value of $2,000. The coupon rate is 6.90 percent and the bond matures in 24 years. If the bond makes semiannual coupon payments, what is the YTM of the bond? Multiple Choice 5.77% 3.21% 3.09% 4.81% 6.41%

A zero coupon bond has a par value of $10,000 and a current price of $5,000....

A zero coupon bond has a par value of $10,000 and a current price of $5,000. If the bond has 8 years to maturity, what is its after- tax yield to maturity for an investor paying 25% taxes? A. 4.4% B. 4.9%C. 5.2% D. 6.6% E. 6.8%

An investor purchased the following three bonds. Each bond has a par value of $500....

An investor purchased the following three bonds. Each bond has a par value of $500. Each bond has a 5% yield on maturity on purchase day. Immediately after the purchase, the interest rate fell, and each had a new yield to maturity of 4%. What is the percentage change in the price of each bond after the fall in interest rates? Please complete the table below: Bond Price at 5% Price at 4% Percentage Change 5 year, 5% annual coupon ___________ ________ ________...

Three years ago, you purchased a 30 year, $1,000 par value bond for a quoted price...

Three years ago, you purchased a 30 year, $1,000 par value bond for a quoted price of 95.0. The bond pays its 5% coupon semi-annually. If the present market rate on identical bonds is 4%, at what price should the bond trade today? If you sell your bond today for the price you calculated above, what is your EFFECTIVE ANNUAL HOLDING PERIOD RETURN over the 3-year period?

A $1,000 par value bond has a current price of $891.04 and a maturity value of $1,000 and matures in 7

A $1,000 par value bond has a current price of $891.04 and a maturity value of $1,000 and matures in 7 years. If interest is paid semiannually and the bond is priced to yield 8%, what is the bond's annual coupon rate?The bond's annual coupon rate is _%?

A(n) 9.0 %, 25-year bond has a par value of $1,000 and a call price of...

A(n) 9.0 %, 25-year bond has a par value of $1,000 and a call price of $1,025. (The bond's first call date is in 5 years.) Coupon payments are made semiannually (so use semiannual compounding where appropriate). a. Find the current yield, YTM, and YTC on this issue, given that it is currently being priced in the market at $ $1,150. Which of these 3 yields is the highest? Which is the lowest? Which yield would you use to value...

A(n) 8.0 ?%, ?25-year bond has a par value of? $1,000 and a call price of...

A(n) 8.0 ?%, ?25-year bond has a par value of? $1,000 and a call price of ?$1,100 . ?(The bond's first call date is in 5? years.) Coupon payments are made semiannually? (so use semiannual compounding where? appropriate). a. Find the current? yield, YTM, and YTC on this? issue, given that it is currently being priced in the market at $ 1,225. Which of these 3 yields is the? highest? Which is the? lowest? Which yield would you use to...

A(n) 9.0 %, 25-year bond has a par value of $1,000 and a call price of...

A(n) 9.0 %, 25-year bond has a par value of $1,000 and a call price of $1,125. (The bond's first call date is in 5 years.) Coupon payments are made semiannually (so use semiannual compounding where appropriate). a. Find the current yield, YTM, and YTC on this issue, given that it is currently being priced in the market at $$1,250. Which of these 3 yields is the highest? Which is the lowest? Which yield would you use to value this...

Subjects