You have a 1-year investment horizon. You are deciding on a 7.4% coupon bond that matures in 10 years. There is a 7.4% coupon rate and the bond pays the $74 coupon once per year. At a 5% YTM, current price is: 7.4% coupon bond = $1185.32 You expect price to be $1170.59 one year from now. Your pre-tax holding for the coupon bond is 5%. If your tax bracket is 30% on ordinary income and 21.6% on capital gains income, what will be the after-tax rate of return on the bond?
Debenture Valuation
A debenture is a private and long-term debt instrument issued by financial, non-financial institutions, governments, or corporations. A debenture is classified as a type of bond, where the instrument carries a fixed rate of interest, commonly known as the ‘coupon rate.’ Debentures are documented in an indenture, clearly specifying the type of debenture, the rate and method of interest computation, and maturity date.
Note Valuation
It is the process to determine the value or worth of an asset, liability, debt of the company. It can be determined by many processes or techniques. Many factors can impact the valuation of an asset, liability, or the company, like:
You have a 1-year investment horizon. You are deciding on a 7.4% coupon bond that matures in 10 years. There is a 7.4% coupon rate and the bond pays the $74 coupon once per year.
At a 5% YTM, current price is:
7.4% coupon bond = $1185.32
You expect price to be $1170.59 one year from now.
Your pre-tax holding for the coupon bond is 5%.
If your tax bracket is 30% on ordinary income and 21.6% on
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