ake Baldwin is looking for a fixed-income investment. He is considering two bond issues: A Treasury with a yield of 5.5% An in-state municipal bond with a yield of 3.8% Jake is in the 32% federal tax bracket and the 6% state tax bracket. Which bond would provide him with a higher tax-adjusted yield?

ake Baldwin is looking for a fixed-income investment. He is considering two bond issues: A Treasury with a yield of 5.5% An in-state municipal bond with a yield of 3.8% Jake is in the 32% federal tax bracket and the 6% state tax bracket. Which bond would provide him with a higher tax-adjusted yield?

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 investor is trying to decide between a muni paying 6.20 percent or an equivalent taxable corporate paying 8.25 percent. What is the minimum marginal tax rate the investor must have to consider buying the municipal bond? Group of answer choices 20.0 percent 66.7 percent 80.0 percent 25.0 percent 75.0 percent
FI Check my work Fergie has the choice between investing in a State of New York bond at 4.4 percent and a Surething Incorporated bond at 7.2 percent. Assuming that both bonds have the same nontax characteristics and that Fergie has a 30 percent marginal tax rate, what interest rate does the State of New York bond need to offer to make Fergie indifferent between investing in the two bonds? (Do not round intermediate calculations. Round your answer to 2 decimal places.) Interest rate % 4:48 AM 62°F 10/26/2021 ere to search |五 End of IR K H. M
compare bond a is giving you 10 % return and municipal bond b is giving you 8 % return . your marginal tax rate is 30% whixh one you will choose . if 2 choose has the same risk ?
What is the solution? See the attached.
Show the tax benefit (per dollar invested) that exists on a municipal bond with a yield of 8U basis points (where one basis point is 0.01%, so that, for example, the yield would be 0.08%x45=3.60% for U=45) for an investor in the marginal 37% tax bracket. U=12
Suppose currently 10-year Treasury bond yields 0.9% and 10-year municipal bond offers 0.8% yield. Also, your federal income tax rate is 30% and state income tax rate is 12%. Calculate the risk premium (spread) of this municipal bond. Note:- Do not provide handwritten solution. Maintain accuracy and quality in your answer. Take care of plagiarism. Answer completely. You will get up vote for sure.
Pierre Dupont just received a cash gift from his grandfather. He plans to invest in a 5 year bond issued by Venice Corp. that pays an annual coupon rate of 5.5%. If the current market rate is 7.2%, what is the maximum amount Pierre should be willing to pay for this bond?
Gronseth Drywall Systems, Inc., is in discussions with its investment bankers regarding the issuance of new bonds. The investment banker has informed the firm that different maturities will carry different coupon rates and sell at different prices. The firm must choose among several alternatives. In each case, the bonds will have a $1,000 par value and flotation costs will be $30 per bond. Calculate the before-tax cost of financing with the following alternative. coupon rate 9% time to maturity 16 years premium or discount $250
You manage a pension fund that will provide retired workers with lifetime annuities. You expect a large number of workers to retire in 8 years. You have the following two bonds to invest in and immunize this portfolio. Inputs Bond A Bond B Settlement date 01-01-2020 01-01-2020 Maturity date 01-01-2025 01-01-2040 Coupon rate 0.025 0.0000 Face Value $1,000.00 $1,000.00 Coupons per year 1 1 Obligation Time to Payout 8 Payout $50,000,000 Initial Yield to Maturity 0.0750 Required: Using any necessary data above, calculate the Present value and Macaulay Duration of the obligation. Assume annual payments. Then calculate the Macaulay Duration and the Modified Duration for each bond. Use this information to immunize the portfolio. Then, re-immunize the portfolio 1 year later using the new yield.
Suppose you invest in a municipal bond that pays a yield of 9%. If your marginal tax is 29%, what is the equivalent yield on the taxable bond? (write your answer in percentage and round it to 2 decimal places)
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)

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