22. An investor in the 30% tax bracket is evaluating two bonds for investment: a corporate bondwith a yield to maturity (YTM) of 8% and a government bond that is tax-free with a YTM of1075% What is the tax-equivalent yield of the government bond for the investor, and whichbond should they choose based on the higher yield?A) 5.60%; Choose the corporate bond.B) 7.14%; Choose the corporate bond.C) 5.60%; Choose the government bond.D) 7.14%; Choose the government bond.E) 8.00%; Choose the corporate bond.23. An investor is considering purchasing either a tax-exempt municipal bond with a yield tomaturity (YTM) of 3.5 percent or a taxable corporate bond with a YTM of 6.0 percent. Whatwould be the investor's tax rate that would make them indifferent between the two bonds?A) 41.67%B) 58.33%C) 42.00%AD) 58.00%biupilboodamenbaisqn24. A bond with a coupon rate of 4.50 percent makes semiannual payments. There are 3ee months remaining until the next coupon payment. If the bond's clean price is $1,025 andthe par value is $1,000, what is the bond's invoice price?mA) $1,036.25B) $1,047.2528000C) $1,037.50D) $995.63LO5

24The invoice price is the clean price plus the accrued interest.Accrued interest = (Coupon rate /…

Answered: 22. An investor in the 30% tax bracket…

Essentials Of Investments

11th Edition

ISBN:9781260013924

Author:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.

Publisher:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.

Chapter1: Investments: Background And Issues

Section: Chapter Questions

Problem 1PS

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14. An investor purchases a 30-year U.S. government bond for $1,020. The bond's coupon rate is 9 percent and, it still had 14 years remaining until maturity. If the investor holds the bond until it matures and collects the $1000 par value from the Treasury and his marginal tax rate is 39 percent (we assume that the bond is taxable), what will be his after-tax (effective) yield to maturity'.,
JJ. 182.
An investor purchases one municipal and one corporate bond that pay rates of retum of 5.00% and6.40% respectively If the investor is in the 15% tax bracket, his after tax rates of return on the municipal and corporate bonds would be respectively
11. Al Kaanz LLC is financed through bonds (debt capital), preference shares and ordinary shares. The bonds of the firm have a market value of OMR 6.4 million. The cost of bond (debt capital) before tax is estimated to be 10 per cent. The market value of its irredeemable non-participating non-convertible preference shares is OMR 6.4 million and the rate of return being offered is 7.5 per cent per year. The company’s equity shares have a market value of OMR 12.8 million, the return on risk-free government securities is 8 per cent and the risk premium for an average risk share has been 6 per cent. Al Kaanz’s shares have a beta of 0.75. The corporate tax is 32 per cent. Calculate the weighted average cost of capital.
Use excel
A Corporation believe that it can sell long term-bonds with an 8% coupon rate, although the effective rate is 10%. If such bonds are part of A Corporation’s financing plans for next year, what is the after-tax (35% tax rate) cost of bonds for purposes of calculating the corporation’s cost of capital. a. 6.5% b. 5.2% c. 7.0% d. 10%
Assume you are in the 32 percent tax bracket and purchase a 3.26 percent, tax-exempt municipal bond. Calculate the taxable equivalent yield for this investment using the formula: Taxable equivalent yield = Tax-exempt return + (1 - Your tax rate) ÷ Note: Enter your answer as a percent rounded to 2 decimal places. Taxable equivalent yield %
Corporate bonds issued by Johnson Corporation yield 8% interest at this time. Equal risk municipal bonds yield 6%. At what tax rate would an investor be indifferent to buying one or the other?
1. A bond issued by the Irbid Municipal priced to yield 7.80%. If you are in the 15% tax bracket this bond would provide you with an equivalent taxable yield of 8.41% 7.80% 9.17% 8.99%
2) Consider the decision to purchase either a 7-year corporate bond or a 7-year municipal bond. The corporate bond is a 14% annual coupon bond with a par value of $1,000. It is currently yielding 12%, The municipal bond has an 9% annual coupon and a par value of $1,000. It is currently yielding 8%. Which of the two bonds would be more beneficial to you? Assume that your marginal tax rate is 30%.
p. A company is offering a 8.4% bond with a current price of $765.40, the yield to maturity equals 8.55%, and the bond has a face value of $1,000. If coupon is paid twice a year, how many years are between now and the maturity of this bond? q. The YTM on a taxable bond is 7% and the YTM of a comparable municipal bond is 4%. Calculate the tax rate that will make investors indifferent between investing in either of the two bonds. r. Samantha's Cleaning Company stock currently costs $42.50 per share, considering a required rate of return of 9.5%. Project the next annual dividend, considering you know that the dividend growth rate is 5% indefinitely.

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