A client in the 39 percent marginal tax bracket is comparing a municipal bond that offers a 4.5 percent yield to maturity and a similar- risk corporate bond that offers a 6.45 percent yield. Determine the equivalent taxable yield. Note: Round your answer to 2 decimal places. Which bond will give the client more profit after taxes? Equivalent taxable yield Which bond will give the client more profit after taxes? %

A client in the 39 percent marginal tax bracket is comparing a municipal bond that offers a 4.5 percent yield to maturity and a similar- risk corporate bond that offers a 6.45 percent yield. Determine the equivalent taxable yield. Note: Round your answer to 2 decimal places. Which bond will give the client more profit after taxes? Equivalent taxable yield Which bond will give the client more profit after taxes? %

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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An investment firm recommends that a client invest in bonds rated AAA, A, and B. The average yield on AAA bonds is 4%, on A bonds 6%, and on B bonds 11%. The client wants to invest twice as much in AAA bonds as in B bonds. How much should be invested in each type of bond if the total investment is $28,000, and the investor wants an annual return of $1,740 on the three investments? Question content area bottom Part 1 The client should invest $enter your response here in AAA bonds, $enter your response here in A bonds, and $enter your response here in B bonds
Using the following expected interest payments, cost of debt = 5%, and tax-rate = 21%, calculate the TAX SHIELD. %3D Expected interest year 1 = 50; year 2 35; year 3 = 20; year 4 10; 5 = 0 %3D !! %3! O 101.36 O 158.33 82.85 O 46.37
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
Suppose your marginal federal income tax rate is 25 percent. 1. What is your after-tax return from holding a one-year corporate bond with a yield of 5.25 percent? (1 pt) 2. What is your after-tax return from a holding a one-year municipal bond with a yield of 4 percent? (1 pt) 3. How would you decide which bond to hold? (Assume that Both bonds carry the same risk.) (1 pt)
An investor in the 22 percent tax bracket is trying to decide which of two bonds to select: one is a 5.5 percent U.S. Treasury bond selling at par, the other is a municipal bond with a 4.25 percent coupon, which is also selling at par. Which of the two bonds hould the investor select? Why?
Use excel
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 corporate bond has a coupon rate of 4.6% and a yield of 6.3%. The tax rate is 27%. What is the after-tax return on the corporate bond? Show your work. Answer:
Required: Find the equivalent taxable yield of the municipal bond for tax brackets of zero, 10%, 20%, and 30%, if it offers a yield of 4.60%. (Round your answers to 2 decimal places.) Equivalent Taxable Yield a. Zero % b. 10% % c. 20% % d. 30% % +
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%.
You just bought a $1,000 bond that is scheduled to mature in ten years. If interest rates rise during the next six months, the market value (or price) of your bond will increase. O decrease. remain unchanged. increase or decrease, depending on the marginal tax bracket you are in.

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