Ler Tax Y What price should the municiple bond trade at in order to have a YTM 70 basis points above the treasury bond of the same maturity. Assume a 35% tax rate now your calculations Muni Bond Price 5 Coupon rate (paid annually ) Face value 26 27 YTM 28 Diff 29 Maturity Treasury Bond Price Coupon rate (paid semi annually 5%) 1000 Face value 5 Maturity 1150 6% 1000 5 2.767% Treasury + 70bps spread
Ler Tax Y What price should the municiple bond trade at in order to have a YTM 70 basis points above the treasury bond of the same maturity. Assume a 35% tax rate now your calculations Muni Bond Price 5 Coupon rate (paid annually ) Face value 26 27 YTM 28 Diff 29 Maturity Treasury Bond Price Coupon rate (paid semi annually 5%) 1000 Face value 5 Maturity 1150 6% 1000 5 2.767% Treasury + 70bps spread
Excel Applications for Accounting Principles
4th Edition
ISBN:9781111581565
Author:Gaylord N. Smith
Publisher:Gaylord N. Smith
Chapter11: Bond Pricing And Amortization (bonds)
Section: Chapter Questions
Problem 8R: a. Reset the Data Section to its initial values. The price of this bond is 1,407,831. What would it...
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Transcribed Image Text:**Bond Pricing and Yield Analysis**
This spreadsheet image focuses on bond pricing and yield analysis, comparing a municipal bond to a treasury bond.
### Key Components:
1. **Treasury Bond Details:**
- **Price:** $1150
- **Coupon Rate:** 6% (paid semi-annually)
- **Face Value:** $1000
- **Maturity:** 5 years
- **Yield to Maturity (YTM):** 2.767%
2. **Municipal Bond (Muni Bond) Details:**
- **Coupon Rate:** 5% (paid semi-annually)
- **Face Value:** $1000
- **Maturity:** 5 years
### Core Questions:
3. **Objective:**
- Determine the price at which the municipal bond should trade to have a YTM that is 70 basis points above the treasury bond of the same maturity.
- Assumes a 35% tax rate.
- Instructions to show calculations are provided.
4. **Indifference Calculation:**
- A query related to the tax rate at which an investor would be indifferent between the two bonds, assuming the municipal bond is insured against default.
- Instructions to show calculations are provided for this scenario.
### Additional Notes:
- The spreadsheet highlights sections in color for emphasis, particularly focusing on differential calculations between the two bond types.
- Users are directed to view calculations to determine specific trade prices and tax rate indifferences.
This educational setup is ideal for understanding bond pricing mechanisms, tax impacts, and yield comparisons.
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9781111581565
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