A resident of New York is in the 32% federal tax bracket and the 6% state income tax bracketand is not subject to the federal 3.8% NIIT. Which of the following bonds would offer theresident the highest after-tax yield?1. Treasury bond paying 4.7%.2. Corporate bond paying 4.9%.3. Louisiana Municipal bond paying 3.5%.O 1 only.O 2 only.O 3 only.O 1 and 3 are the same and have the highest after-tax yield.

Treasury bond paying 4.7%Federal Tax Rate: 32%State Tax Rate: 6%After-tax yield = (1 - Federal Tax…

Answered: ubject to the federal 3.8% NIIT. WH…

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ubject to the federal 3.8% NIIT. WH highest after-tax yield? bond paying 4.7%.

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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Question

A resident of New York is in the 32% federal tax bracket and the 6% state income tax bracket
and is not subject to the federal 3.8% NIIT. Which of the following bonds would offer the
resident the highest after-tax yield?
1. Treasury bond paying 4.7%.
2. Corporate bond paying 4.9%.
3. Louisiana Municipal bond paying 3.5%.
O 1 only.
O 2 only.
O 3 only.
O 1 and 3 are the same and have the highest after-tax yield.

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Suppose the interest rate on a taxable corporate bond is 4 percent while a municipal, tax exempt bond has an interest rate of 3 percent, and they are similar in every other way. Assuming the income tax rate is 30 percent, calculate the after tax interest rate on the corporate bond. Is it higher or lower than the after tax return on the municipal bond?
Suppose the interest rate on a taxable corporate bond is 7 percent while a municipal, tax exempt bond has an interest rate of 5 percent, and they are similar in every other way. Assuming the income tax rate is 30 percent, calculate the after tax interest rate on the corporate bond. Is it higher or lower than the after tax return on the municipal bond? What is the income tax rate that equalizes the after tax return between the corporate bond and the municipal bond.
An investor purchases one municipal and one corporate bond that pay rates of return of 7.2% and 9.1%, respectively. If the investor is in the 12% marginal tax bracket, his or her after-tax rates of return on the municipal and corporate bonds would be ________ and ______, respectively. A) 7.2%; 9.1% B) 7.2%; 8.008% C) 6.12%; 7.735% D) 8.471%; 9.1% Provide an accurate answer with justification.
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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An investor purchases one municipal and one corporate bond that pay rates of return of 7.2% and 9.1%, respectively. If the investor is in the 15% marginal tax bracket, his or her after-tax rates of return on the municipal and corporate bonds would be ________ and ______, respectively. A. 6.12%;7.735% B. 7.2%;7.735% C. 7.2%;9.1% D. 8.471%;9.1%
4) An investor purchases one municipal and one corporate bond that pay rates of return of 7.5% and 10.3%, respectively. If the investor is in the 24% marginal tax bracket, what will be his or her after-tax rates of return on the municipal and corporate bonds?
In order for you to be indifferent between the after-tax returns on a corporate bond paying 9% and a tax-exempt municipal bond paying 7%, what would your tax bracket need to be? A. Cannot be determined from the information given. B. 17.6% C. 27% D. 19.8% E. 22.2%
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Question 1: Assume that Larry's marginal tax rate is 25%. If corporate bonds pay 7.4% interest, what interest rate would a municipal bond have to offer for Larry to be indifferent between the two bonds? Multiple Choice a) 25.00% b) 9.25% c) 7.40% d) 5.55% e) None of the choices are correct.
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