2. Which of the following is a reason why zero-coupon bonds are the best way for high-income taxpayers to extract maximum value from tax-exempt state and local government bonds? a.The investments pay interest continually. b.The interest earned on the accumulated principal and interest is not tax-exempt.

2. Which of the following is a reason why zero-coupon bonds are the best way for high-income taxpayers to extract maximum value from tax-exempt state and local government bonds? a.The investments pay interest continually. b.The interest earned on the accumulated principal and interest is not tax-exempt.

Financial Accounting Intro Concepts Meth/Uses

14th Edition

ISBN:9781285595047

Author:Weil

Publisher:Weil

Chapter11: Notes, Bonds, And Leases

Section: Chapter Questions

Problem 8Q

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7. Zero-coupon bonds are the best way for high-income taxpayers to extract maximum value from tax-exempt state and local government bonds because: a.Zero-coupon bonds are sold for nearly their full face value and provide most of their income in the form of interest. b.Zero-coupon bonds allow the investor to make additional tax-exempt investments. c.The interest earned on the accumulated principal and interest is not tax-exempt. d.The investments pay interest continually. e.Zero-coupon bonds include more transaction fees.
2. Bond A and Bond B have identical characteristics except that Bond A has a higher interest rate. Which bond has a higher credit risk? 3. Bond A and Bond B are identical except Bond B has a longer term. Therefore, we expect Bond _____ to pay a higher rate of interest. 4.Bonds issued by state and local governments are called _____ bonds. Bonds issued by financially shaky corporations are called _____ bonds. Of these two, which type of bond usually pays a relatively higher interest rate?
Which of the following is incorrect about debt financing? A. Debt financing always generates excess returns which benefits equity investors b. One benefit of debt financing is that interest on most debt is fixed c. One benefit of debt financing is that interest is a tax deductible expense d. It increases financial leverage
Identify the following as either an advantage or a disadvantage of bond financing for a company. a. Bond interest payments reduce total taxes paid. b. Bonds do not affect owner control. c. A company earns a lower return with borrowed funds than it pays in interest. d. A company earns a higher return with borrowed funds than it pays in interest. e. Bonds require payment of periodic interest. f. Interest on bonds is tax deductible.
Why do companies often prefer debt financing to other forms of financing for capitalinvestments?a. Actually, they don't prefer debt financing. They usually try to use retainedearnings for capital investments.b. Because bond holders are happy to just break even on their bonds.c. Because the MARR all but guarantees the projects will return yields greater thanthe interest on the loans.d. Because debt interest is tax deductible, reducing significantly the actual cost ofborrowing money for projects.
An investor seeking relatively low default risk investments combined with some type of favorable tax treatment and inflation protection should consider which of the following?(1) Insured municipal bonds. (2) TIPS. (3) Zero coupon Treasury bonds. (4) Series I savings bonds. (5) Series HH savings bonds. a. 1, 2 and 3. b. 1, 2 and 4. c. 2 and 4. d. 2, 4 and 5.
Identify the following as elther an advantage or a disadvantage of bond financing for a company. a. Bonds increase return on equity if the company earns a higher return with borrowed funds than it pays in interest. b. Interest on bonds is tax deductible. c. Bonds require payment of par value at maturity. d. Bonds do not affect owner control. e. A company earns a lower return with borrowed funds than it pays in interest. f. Unlike equity ownership, a par value payment is required at a specified date. Advantage
Why do most municipal bonds pay lower interest than riskless Treasury bonds?
Which is not a benefit of debt to the corporation?a. interest payments are tax deductibleb. when debt is used heavily, it increases stock valuec. In periods of inflation, debt is paid back with amounts that are worth less than the ones borrowed.d. compared to equity, debts have a lower cost of capitale. answer not given
1) A corporation may choose to use debt financing because a) it has an income tax advantage. b) it typically has a higher cost of capital than equity. c) it carries voting rights. d) it reduces financial leverage. 2. The effective rate of interest on bonds a) is the interest rate specified on the bond certificate. b) is the market rate of interest when the bonds are actually sold. c) is the market rate of interest on the date of public announcement. d) none of these choices.
Select the correct statement: The value of a premium bond will fall over time, if cost of debt (rd) decreases The value of a discount bond will fall over time, if cost of debt (rd) does not change The value of a discount bond will increase ove time, if cost of debt (rd) does not change The value of a premium bond will increase over time, if cost of debt (rd) does not change
These are corporate bonds that have a higher rate of return with a higher level of risk? Group of answer choices Revenue bonds Junk bonds GOBs Tax increment bonds