d. If your tax bracket is 30% on ordinary income and 21.4% on capital gains income, what will be the after-tax rate of return on each bond? (Round your answers to 2 decimal places.) Zero Coupon 7.6% Coupon 8.6% Coupon After-tax rate of return % % % e. Recalculate your answers to (b)-(d) under the assumption that you expect the yields to maturity on each bond to be 5% at the beginning of next year. (Round your answers to 2 decimal places.) Zero Coupon 7.6% Coupon 8.6% Coupon Price 1 year from now Pre-tax rate of return % % After-tax rate of return % %
d. If your tax bracket is 30% on ordinary income and 21.4% on capital gains income, what will be the after-tax rate of return on each bond? (Round your answers to 2 decimal places.) Zero Coupon 7.6% Coupon 8.6% Coupon After-tax rate of return % % % e. Recalculate your answers to (b)-(d) under the assumption that you expect the yields to maturity on each bond to be 5% at the beginning of next year. (Round your answers to 2 decimal places.) Zero Coupon 7.6% Coupon 8.6% Coupon Price 1 year from now Pre-tax rate of return % % After-tax rate of return % %
Chapter1: Financial Statements And Business Decisions
Section: Chapter Questions
Problem 1Q
Related questions
Question
Assume you have a 1-year investment horizon and are trying to choose among three bonds. All have the same degree of default risk and mature in 10 years. The first is a zero-coupon bond that pays $1,000 at maturity. The second has an 7.6% coupon rate and pays the $76 coupon once per year. The third has a 8.6% coupon rate and pays the $86 coupon once per year.
a. If all three bonds are now priced to yield 6% to maturity, what are the prices of: (i) the zero-coupon bond; (ii) the 7.6% coupon bond; (iii) the 8.6% coupon bond?
Answer to a
Current Prices
Zero Coupon= $558.39
7.6% = $1117.76
8.6%= $1191.36
Need answers to part d and e
Transcribed Image Text:d. If your tax bracket is 30% on ordinary income and 21.4% on capital gains income, what will be the after-tax rate of return on each
bond? (Round your answers to 2 decimal places.)
Zero Coupon
7.6% Coupon
8.6% Coupon
After-tax rate of return
%
%
e. Recalculate your answers to (b)(d) under the assumption that you expect the yields to maturity on each bond to be 5% at the
beginning of next year. (Round your answers to 2 decimal places.)
Zero Coupon
7.6% Coupon
8.6% Coupon
Price 1 year from now
Pre-tax rate of return
%
%
After-tax rate of return
%
%
%
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