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?

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?

FINANCIAL ACCOUNTING

10th Edition

ISBN:9781259964947

Author:Libby

Publisher:Libby

Chapter1: Financial Statements And Business Decisions

Section: Chapter Questions

Problem 1Q

See similar textbooks

Similar questions

Albert purchased a bond with exactly 20 years to redemption. The bond pays annual coupons, in arrears, of 5% per annum and is redeemed at par. Albert, who is not liable to pay tax, will obtain a gross redemption yield of 6% per annum if he holds the bond utill redemption. (a) Calculate the purchase price Albert paid for the bond, per $100 nominal if his intention was to hold the bond utill redemption. (b) After exactly ten years, immediately after receiving payment of the coupon then due, Albert sells the bond to Vicky who is liable to pay income tax and capital gains tax at a rate of 30%. The bond is purchased by Vicky to provide a net rate of return of 6.5% per annum. (i) Calculate the price Vicky paid for the bond, per $100 nominal. (ii) Using trial-and-error followed by linear interpolation, calculate the annual effective rate of return, correct to 4 decimal places, earned by Albert during the period for which he held the bond.
Dear Financial Adviser, My spouse and I are each 62 and hope to retire in three years. After retirement we will receive $9,100 per month after taxes from our employers' pension plans and $3,100 per month after taxes from Social Security. Unfortunately our monthly living expenses are $16,600. Our social obligations preclude further economies. We have $820,000 invested in a high-grade, tax-free municipal-bond mutual fund. The return on the fund is 5.0% per year. We plan to make annual withdrawals from the mutual fund to cover the difference between our pension and Social Security Income and our living expenses. Sincerely, Luxury Challenged Marblehead, MA You can assume that the withdrawals (one per year) will sit in a checking account (no interest) until spent. The couple will use the account to cover the monthly shortfalls. How many years before Luxury Challenged runs out of money? Note: Do not round intermediate calculations. Round your answer to 2 decimal places. Number of years
Ef 505.
Meroy Karthik is a bank executive who has just inherited a large sum of money. Having spent several years in the bank’s investments department, he is well aware of the concept of duration - convexity and decides to apply it to his bond portfolio. In particular, Meroy intends to use RM1 millions of his inheritance to purchase two Malaysian Treasury Bonds: Prepare the duration and the modified duration table of each bond. Find the duration of the portfolio if Meroy allocates 70 percent into Bonds GO190001 and 30 percent into Bond MO190002.
Steven is looking to invest his excess money of $430,000 in an opportunity that will provide the best overall net cash flow. If he invests in Wildhorse County bonds, they will generate 3% interest annually. If he invests in Wildhorse Manufacturing Company bonds, they will generate 4.25% interest annually. Steven is currently in a 32% tax bracket. Which investment will provide his best overall net cash flow? Net cash flow $ Wildhorse County Bond Wildhorse Manufacturing Co. $ investment will provide best overall net cash flow.
Investor Matt has $324,000 to invest in bonds. Bond A yields an average of 7.3% and the bond B yields 7.7%. Matt requires that at least 4 times as much money be invested in bond A as in bond B. You must invest in these bonds to maximize his return. What is the maximum return? $ per year. Round to the nearest cent.
A family friend owns a private comany and wants to raise some cash. The company is not yet public so your friend wants to structure a 3-year debt instrument that looks like a bond that can be sold. The deal is for each one of these that you buy today for $975, you will recieve every quarter a $110 payment. And at the end of the three years (after getting all those payments) you will get a final of S1, 100 payment. What is the yield to maturity after this investment? please show work in excel.
One of your clients has decided that she needs to sell one of her bonds in order to help her pay for tuition for her daughter’s college courses. Your client owns a $20,000 bond that she bought for $20,000 and it pays her 5% interest each year, which is fixed for the remaining 8 years until the bond matures. Because interest rates in the market have risen since your client bought the bond, the best price that anyone has offered to buy it from her is $ 18,400. If she agrees to sell the bond for $ 18,400 and the new owner holds the bond until maturity, what will the approximate yield to maturity be on the bond for the new owner?
The following tutorial questions serve as practice questions on TVM and Bond Valuation. (Show Working) 1. Your grandfather left an inheritance for you of $100,000. However you can only drawdown on the investment as follows: Years 1 – 3 $15,000 each year Year 4 to 6 $10,000 each year Year 7 $25,000 Interest on the fund is 5%. a. What is the present worth of this inheritance? b. Due to high liquidity interest rate have dropped to 4%. What will be the impact on the present worth of this inheritance as a consequence of the market change?
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.
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.