A 10-year corporate bond has an annual coupon of 9 percent ($45 paid semi-annually) and a price of $1,033.24, while a 10-year municipal bond has an annual coupon of 5 percent ($25 paid semi-annually) and a price of $925.61. Given this information, determine what your tax rate must be so that both of these bonds have the same after-tax yield. O 30.23% O 29.41% O 27.71% O 26.83% 28.57%

A 10-year corporate bond has an annual coupon of 9 percent ($45 paid semi-annually) and a price of $1,033.24, while a 10-year municipal bond has an annual coupon of 5 percent ($25 paid semi-annually) and a price of $925.61. Given this information, determine what your tax rate must be so that both of these bonds have the same after-tax yield. O 30.23% O 29.41% O 27.71% O 26.83% 28.57%

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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4. Chapter MC, Section .03, Problem 106 A 7-year municipal bond yields 4.80%. Your marginal tax rate (including state and federal taxes) is 32.00%. What interest rate on a 7-year corporate bond of equal risk would provide you with the same after-tax return? (Round your final answer to two decimal places.) Oa. 7.06% Ob. 3.64% OC. 6.34% d. 3.26% e. 15.00% Save & Continue Continue without saving
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The coupon rate on an issue of debt is 9%. The yield to maturity on this issue is 12%. The corporate tax rate is 33 %. What would be the approximate after-tax cost of debt for a new issue of bonds? Note: Round your answer to 2 decimal places.
A U.S. Treasury bond pays 7.6 percent interest. You are in the 22 percent tax bracket. 5.93 is the after tax-yield on this bond. If you face a 22% marginal tax rate, what is your after-tax return on each of the following bonds? A 8.6% coupon semiannual corporate bond with 7 years to maturity, currently selling for $950. Don't round steps. 2 decimal answer. _% A 5.8% coupon semiannual corporate bond with 6 years to maturity, currently selling for $1,015. Don't round steps, 2 decimal answer. _% A 4.8% coupon semiannual municipal bond with 11 years to maturity, currently selling for $1,016. Don't round steps. 2 decimal answer. _%
LotsaDough's bonds have a 20-year maturity, 8% coupon (paid annually), $1000 par (face) value, and are priced at $952.68. What is LotsaDough's cost of debt (ignoring taxes)? Group of answer choices 7.0% 7.5% 8.0% 8.5%
A bond issued by the State of Pennsylvania provides a 5.75% yield. What yield on a Synthetic Chemical Company bond would cause the two bonds to provide the same after-tax rate of return to an investor in the 35.00% tax bracket? (Round your final answer to two decimal places.) O a. 3.74% O b. 7.76% O c. 8.85% O d. 4.26% O e. 16.43%
Answer
Suppose your company needs to raise $35.8 million and you want to issue 23- year bonds for this purpose. Assume the required return on your bond issue will be 8.3 percent, and you?re evaluating two issue alternatives: a 8.3 percent semiannual coupon bond and a zero coupon bond. Your company's tax rate is 35 percent. Requirement 1: (a) How many of the coupon bonds would you need to issue to raise the $35.8 million? (b) How many of the zeroes would you need to issue? Requirement 2: (a) In 23 years, what will your company's repayment be if you issue the coupon bonds? (b) What if you issue the zeroes? Requirement 3: Assume that the IRS amortization rules apply for the zero coupon bonds. Calculate the firm's aftertax cash outflows for the first year under the two different scenarios.
The yield to maturity is 10%. The.corporate tax rate is 31%. What would be the approximate after-tax cost of debt for a new issue of bonds? O 5.28% O 248% O 6.90% O 3.14%
A 4.00 percent coupon municipal bond has 12 years left to maturity and has a price quote of 95.55. The bond can be called in four years. The call premium is one year of coupon payments. (Assume interest payments are semiannual and it has a par value of $5,000.) Compute the bond's current yield. Compute the yield to maturity. Compute the taxable equivalent yield (for an investor in the 30 percent marginal tax bracket). Compute the yield to call.
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%.

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