CONNECT WITH LEARNSMART FOR BODIE: ESSE
11th Edition
ISBN: 2819440196246
Author: Bodie
Publisher: MCG
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Chapter 2, Problem 14PS
Suppose that short-term municipal bonds currently offer yields of 4%, while comparable taxable bonds pay 5%. Which gives you the higher after-tax yield if your combined tax bracket is: (LO 2-1)
a. Zero
b. 10%
e. 20%
d. 30%
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Short-term municipal bonds currently offer yields of 4%, while comparable taxable bonds pay 5%. Which gives you the higher after-tax yield if your tax bracket is:a. Zerob. 10%c. 20%d. 30%
You can invest in taxable bonds that are paying a yield of 9.4 percent or a municipal bond paying a yield of 7.65 percent. Assume your
marginal tax rate is 21 percent.
a. Calculate the after-tax rate of return on the taxable bond? (Round your answer to 2 decimal places. (e.g., 32.16))
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a
b.
Rate of return
The security bond one should buy is
%
Suppose you invest in a municipal bond that pays a yield of 4. If your marginal tax is 17%, what is the equvalent yield on the taxable bond? (write your answer in percentage and round it to 2 decimal places)
Chapter 2 Solutions
CONNECT WITH LEARNSMART FOR BODIE: ESSE
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Need a deep-dive on the concept behind this application? Look no further. Learn more about this topic, finance and related others by exploring similar questions and additional content below.Similar questions
- MULTIPLE CHOICE Calculate the after-tax cost of debt under each of the following cases: (a) the interest rate is 10 percent, and the tax rate is 40 percent; (b) the interest rate is 11 percent, and the tax rate is 50 percent? A. (a)10% and (b)4.5%B. (a)5% and (b)5.5%C. (a)12% and (b)6.5%D. (a)6% and (b)5.5%E. None of the abovearrow_forwardb) You can invest in taxable bonds that are paying a yield of 9.50% or a municipal bond paying a yield of 7.75%. If your marginal tax rate is 21%, which security bond should you buy? Answer:arrow_forwardShow the tax benefit (per dollar invested) that exists on a municipal bond with a yield of 8U basis points (where one basis point is 0.01%, so that, for example, the yield would be 0.08%x45=3.60% for U=45) for an investor in the marginal 37% tax bracket. U=12arrow_forward
- You can invest in taxable bonds that are paying a yield of 9.7 percent or a municipal bond paying a yield of 7.95 percent. Assume your marginal tax rate is 21 percent. a. Calculate the after-tax rate of return on the taxable bond? (Round your answer to 2 decimal places. (e.g., 32.16))b. Which security bond should you buy?arrow_forwardWhat is the tax exempt equivalent yield on a 8% bond yield given a marginal tax rate of 25%? Mutiple Choice O O 6.00% 10.67% ROO% 6.40%arrow_forwardyou invest in a municipal bond that pays a yield of 10%. If your marginal tax is 26%, what is the equIvalent yield on the taxable bond? (write your answer in percentage and round it to 2 decimal places)arrow_forward
- 4. Chapter MC, Section .03, Problem 106 A 7-year municipal bond yields 4.80%. Your marginal tax rate (including state and federal taxes) is 32.00%. What interest rate on a 7-year corporate bond of equal risk would provide you with the same after-tax return? (Round your final answer to two decimal places.) Oa. 7.06% Ob. 3.64% OC. 6.34% d. 3.26% e. 15.00% Save & Continue Continue without savingarrow_forward3. The after tax yield on a bond is (1- tax rate) x yield. Suppose that someone has a tax rate of 25%, that the interest rate on a bond with taxable interest is 5%, and the the interest rate on a bond whose interest is not taxable is 4%. Show that other things the same that this person gets a higher after tax yield by holing the second bond.arrow_forwardWhat is the solution? See the attached.arrow_forward
- Required: Find the equivalent taxable yield of the municipal bond for tax brackets of zero, 10%, 20%, and 30%, if it offers a yield of 4.60%. (Round your answers to 2 decimal places.) Equivalent Taxable Yield a. Zero % b. 10% % c. 20% % d. 30% % +arrow_forwardcompare bond a is giving you 10 % return and municipal bond b is giving you 8 % return . your marginal tax rate is 30% whixh one you will choose . if 2 choose has the same risk ?arrow_forwardPlease do your own work, don't copy from the internet Q5) Calculate the aftertax cost of debt under each of the following conditions: Yield Corporate Tax Rate a. 8.0% 18% b. 12.0% 34% c. 10.6% 15% Solution: Kd = Yield (1 – T) Yield (1 – T) Yield (1 – T) 8.0% (1 – .18) 12.0% (1 – .34)arrow_forward
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