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A newly issued bond pays its coupons once annually. Its coupon rate is 4.2%, its maturity is 20 years, and its yield to maturity is 11.5% a. Find the holding-period return for a 1-year investment period if the bond is selling at a yield to maturity of 10.5% by the end of the year. (Do not round intermediate calculations. Round your answer to 2 decimal places.) Holding period return 21.69%

A newly issued bond pays its coupons once annually. Its coupon rate is 4.2%, its maturity is 20 years, and its yield to maturity is 11.5% a. Find the holding-period return for a 1-year investment period if the bond is selling at a yield to maturity of 10.5% by the end of the year. (Do not round intermediate calculations. Round your answer to 2 decimal places.) Holding period return 21.69%

Essentials Of Investments
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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A newly issued bond pays its coupons once annually. Its coupon rate is 4.2%, its maturity is 20 years, and its yield to maturity is 11.5% a. Find the holding-period return for a 1-year investment period if the bond is selling at a yield to maturity of 10.5% by the end of the year. (Do not round intermediate calculations. Round your answer to 2 decimal places.) Holding-period return 21.69% b. If you sell the bond after one year, what taxes will you owe if the tax rate on interest income is 40% and the tax rate on capital gains income is 30%? The bond is subject to original-issue discount tax treatment. (Do not round intermediate calculations. Round your answers to o 2 decimal places.) Tax on interest income Tax on capital gain Total taxes Show Transcribed Text G c. What is the after-tax holding-period return on the bond? (Do not round intermediate calculations. Round your answer to 2 decimal places.) After-tax holding-period return d. Find the realized compound yield before taxes for a 2-year holding period, assuming that (0) you sell the bond after two years, (ii) the bond yield is 10.5% at the end of the second year, and (ii) the coupon can be reinvested for one year at a 3% interest rate. (Do not round intermediate calculations. Round your answer to 2 decimal places.) Realized compound yield before taxes
Transcribed Image Text:A newly issued bond pays its coupons once annually. Its coupon rate is 4.2%, its maturity is 20 years, and its yield to maturity is 11.5% a. Find the holding-period return for a 1-year investment period if the bond is selling at a yield to maturity of 10.5% by the end of the year. (Do not round intermediate calculations. Round your answer to 2 decimal places.) Holding-period return 21.69% b. If you sell the bond after one year, what taxes will you owe if the tax rate on interest income is 40% and the tax rate on capital gains income is 30%? The bond is subject to original-issue discount tax treatment. (Do not round intermediate calculations. Round your answers to o 2 decimal places.) Tax on interest income Tax on capital gain Total taxes Show Transcribed Text G c. What is the after-tax holding-period return on the bond? (Do not round intermediate calculations. Round your answer to 2 decimal places.) After-tax holding-period return d. Find the realized compound yield before taxes for a 2-year holding period, assuming that (0) you sell the bond after two years, (ii) the bond yield is 10.5% at the end of the second year, and (ii) the coupon can be reinvested for one year at a 3% interest rate. (Do not round intermediate calculations. Round your answer to 2 decimal places.) Realized compound yield before taxes
e. Use the tax rates in part (b) to compute the after-tax 2-year realized compound yield. Remember to take account of OID tax rules. (Do not round intermediate calculations. Round your answer to 2 decimal places.) After-tax 2-year realized compound yield % D
Transcribed Image Text:e. Use the tax rates in part (b) to compute the after-tax 2-year realized compound yield. Remember to take account of OID tax rules. (Do not round intermediate calculations. Round your answer to 2 decimal places.) After-tax 2-year realized compound yield % D
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