A taxable bond has a yield of 8.50% and a municipal bond has a
yield of 5.95%. At what tax rate would you be indifferent between
the two bonds (i.e., the rate where the returns on the two bonds
are equal)?
a.
40.00 percent
b.
25.00 percent
c.
35.00 percent
d.
30.00 percent
North Side Corporation is expected to increase dividends at 10
percent rate each year over the next three years. Afterward, the
company pledges to maintain a constant...
A. What are the tax risks associated with municipal
bonds?
B. What is the equivalent taxable yield for an investor
with a 35% marginal tax rate who could buy a tax-exempt municipal
bond with a yield of of 8.5%?
C. Why might the equivalent taxable yield be limited in
how it measures the relative value of a tax-exempt bond versus a
taxable bond?
(a) Suppose you purchase a 20-year, zero-coupon bond with a
yield to maturity of 10%. For a face value of $800, the bond will
initially trade for
(b) If the bond’s yield to maturity change to be 12%, what will
its price be five years later?
(c) If you purchased the bond at $118.91 and sold it 5 years
later, what would the rate of return of your investment be?
You find a zero coupon bond with a par value of $10,000 and 20 years to maturity. The yield to maturity on this bond is 4.2 percent. Assume semiannual compounding periods. What is the price of the bond? (Do not round intermediate calculations and round your answer to 2 decimal places, e.g., 32.16.)
For 2017 the actual tax brackets for a single tax filer
were:
• For taxable income from $0 to $9,325, you pay 10% of it in
taxes, plus
• For taxable income from $9,326 to $37,950, you pay 15% of it in
taxes, plus
• For taxable income from $37,951 to $91,900, you pay 25% of it in
taxes, plus
• For taxable income from $91,901 to $191,650, you pay 28% of it in
taxes, plus
• For taxable income...
It is now date zero. Currently the yield on a one-year bond is
10%, on a two-year bond is 15%, and on a three-year bond is 17%.
Furthermore, everyone expects inflation to run at 5% this year, 10%
next year and at 15% the year after that. Assuming that the pure
expectations model correctly describes the behavior of the term
structure, calculate the market’s expectation of the
following:
a. The nominal interest rate on a
one-year bond originating date 1...
After-tax Yield. You need to choose between
investing in a one-year municipal bond with a 0.01 yield and a
one-year corporate bond with an 0.09 yield. If your marginal
federal income tax rate is 0.22 and no other differences exist
between these two securities, which one would you invest in? For
the answer, enter the after-tax yield that you
will ultimately get once you choose the best bond. Enter
the answer as a decimal using 4 decimals (e.g.
0.1234).
Suppose a 10-year zero-coupon bond (zero) is trading spot at 6%
and a 20-year zero is trading spot at 8%. We know that the 10 year
forward rate for a 10 year zero must be 0.1004 (annual
compounding). All are risk free. If the rates are not 0.1004 for
the forward you can make a free profit by using arbitrage.
Suppose you have $0 dollars today but are allowed to sell and
buy $100,000 worth of zero coupon bonds (and...
Suppose a 10-year zero-coupon bond (zero) is trading
spot at 5% and a 20-year zero is trading spot at 7%. In lectures
(L4.9) we proved that the 10 year forward rate for a 10 year zero
must be 0.0904 (annual compounding). All are risk free.
If the rates are not 0.0904 for the forward you can make a free
profit by using arbitrage. Suppose you have $0 dollars today but
are allowed to sell and buy $100,000 worth of zero...