Harry Styles has the choice between investing in a City of San Diego bond at 3.00 percent or investing in a Nike Inc bond at 4.25 percent. Assuming that both bonds have the same nontax characteristics and that Harry has a 40 percent marginal tax rate, what interest rate does Nike Inc need to offer to make Harry indifferent between investing in the two bonds?

Harry Styles has the choice between investing in a City of San Diego bond at 3.00 percent or investing in a Nike Inc bond at 4.25 percent. Assuming that both bonds have the same nontax characteristics and that Harry has a 40 percent marginal tax rate, what interest rate does Nike Inc need to offer to make Harry indifferent between investing in the two bonds?

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 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?
Ef 505.
Three friends - Jodie, Natile, and Neil - have asked you to determine the equivalent taxable yield on a municipal bond. The bond’s current yield is 3.75 percent with 5 years left until maturity. Jodie is in the 15 percent marginal tax bracket, Natalie is in the 25 percent bracket, and Neil is in the 35 percent tax bracket. Calculate the equivalent taxable yield for your three friends. Assuming a similar AAA corporate bond yields 4 percent, which of your friends should purchase the municipal bond?
Use excel
Keith Coalburner has written a letter of complaint regarding his recent purchase of municipal bonds to his broker-dealer. Upon receipt of the complaint, the broker-dealer must first guarantee to make the customer whole accept the complaint and write down any action taken return any markup or commission charged immediately repurchase the securities at a price at or slightly above Keith’s purchase price
46) Pete "Polar Bear" Alonso wants to purchase a bond with the highest tax-affect yield. He has a choice between a New York City municipal bond yielding 4.09% or a AAA-rated Coca Cola bond yielding 4.38%. His tax rate is 30%. Assuming the Polar Bear is a rational (and that is a stretch), which bond would be prefer? a) Neither, as he doesn't understand how to calculate tax-affected yields b) New York City bond c) Both, tax-affected yield is exactly the same d) Coca Cola e) His tax bracket is wrong
Susan is looking into a convertible bond but does not know how to value this bond. The bond has a $1,000 face value and a conversion ratio of 36. What is the conversion price? If the stock price is $42, what is the conversion value? What is the downside risk percentage of the bond if the current price is $1,250 and the investment premium is $861.53? Is this risk concerning? The stock is currently selling for $42 per share. The issuer of the bond has announced a call; the call price is 108. What are your options here? What should you do?
Ms. White has started her job and wanted to save her money in one way or other. But instead ofsaving money in the bank, she wished to invest it so that money could earn a return. She isintimidated by her friend's investment growth and decides to do the same. She decided topurchase a bond with face value $1,000. The annual coupon payment for the cond is 9%. Theinterest rate of the bond is 13% and maturity 2. She knew that the maturity levels and interestrate of the bond impact its price. So to test the same statement, she purchased 2 more bondswith the same specifications, except, one with maturity 2 and interest rate 10% while the otherwith maturity 3 and interest rate 13%. Determine the impact of change in the value of the bond.A: The bond selling price is $773.98 when interest rate decrease to 10% and $819.01 whenmaturity increases to 3.B: The bond selling price is $796.46 when interest rate decrease to 10% and $853.63 whenmaturity increases to 3.C: The bond selling price is $982.64…
Alec inherited ₱1,000,000 from his grandparents. He planned to invest it for his future. He was offered a 45% ownership and the other one is 6.5% bond of the fast food chain that will be built on their local area. Help Alec decide by illustrating to him the two options with the different successful rate. Follow the example in the 2nd attached image.
Elizabeth is trying to decide whether to buy a corporate bond that pays a 6.5% coupon or a muni bond that pays a 4.8% coupon. the bonds are comparable risk and maturity. if she has a 24% marginal tax rate, which bond should she buy and why? buy the corporate bond because its yield is greater than the muni bond yield buy the muni because she can avoid paying taxes on the interest. buy the corporate bond because her after-tax bond yield on the corporate bond is greater than the muni yield. she should be indifferent between the two bonds because they are both good investments. buy the muni because her return on the muni is greater than her after-tax return on the corporate bond
Isabel prefers to purchase bonds that contain a sinking fund provision to protect her from any potential loss of her invested capital. She purchased a 20-year, $20,000 sinking fund bond with a 12% coupon, paid seml-annually, for $18,900. If the company calls the bond after 10 years, and the call penaity requires a payment of $30 per $1,000 of face value, what are the yeilds to maturity and yeild to call on this bond? -previous answered questions were wrong, show calculations.
A municipal bond has a YTM of 5.19 percent while the YTM of a comparable taxable bond is 7.78 percent. What is the tax rate that will make an investor indifferent between the municipal bond and the taxable bond? Multiple Choice4 3.65 % 34.54% 45.37 % 52.76 % 37.99%

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