Essentials of Investments (The Mcgraw-hill/Irwin Series in Finance, Insurance, and Real Estate)
10th Edition
ISBN: 9780077835422
Author: Zvi Bodie Professor, Alex Kane, Alan J. Marcus Professor
Publisher: McGraw-Hill Education
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Textbook Question
Chapter 2, Problem 16PS
Find the equivalent taxable yield of the municipal bond in Problem 14 for tax brackets of: (LO 2-1)
a. Zero
b. 10%
c. 20%
d. 30%
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ASAP
Taxable Equivalent Yield What's the taxable equivalent yield on a municipal bond with a yield to maturity of 5.25 percent for an investor in the 25 percent marginal tax bracket?
Note: Round your answer to 2 decimal places.
Multiple Choice
21.00 %
о
о
1.31%
7.00%
5.25%
Bond A is a municipal bond and Bond B is a corporate bond. If you pay a very high tax rate, which bond do you prefer?
Select one:
a.
B
b.
A
c.
A=B
Chapter 2 Solutions
Essentials of Investments (The Mcgraw-hill/Irwin Series in Finance, Insurance, and Real Estate)
Ch. 2 - Prob. 1PSCh. 2 - Why do most professionals consider the Wilshire...Ch. 2 - Prob. 3PSCh. 2 - What are the major components of the money market?...Ch. 2 - Describe alternative ways that an investor may add...Ch. 2 - Why are hightaxbracket investors more inclined to...Ch. 2 - Prob. 7PSCh. 2 - How does a municipal revenue bond differ from a...Ch. 2 - Prob. 9PSCh. 2 - 10. What is meant by limited liability? (LO 2-1)
Ch. 2 - Which of the following correctly describes a...Ch. 2 - Why are money market securities sometimes referred...Ch. 2 - A municipal bond carries a coupon rate of 4.25%...Ch. 2 - Suppose that short-term municipal bonds currently...Ch. 2 - An investor is in a 30% combined federal plus...Ch. 2 - Find the equivalent taxable yield of the municipal...Ch. 2 - Prob. 17PSCh. 2 - Prob. 18PSCh. 2 - Prob. 19PSCh. 2 - Using the data in the previous problem, calculate...Ch. 2 - Prob. 21PSCh. 2 - Prob. 22PSCh. 2 - A T-hill with face value $10.000 and 87 days to...Ch. 2 - Prob. 24PSCh. 2 - Prob. 25PSCh. 2 - What options position is associated with: (LO 2-3)...Ch. 2 - Why do call options with exercise prices higher...Ch. 2 - Both a call and a put currently are traded on...Ch. 2 - Prob. 30PSCh. 2 - Examine the stocks listed in Figure 2.8. For what...Ch. 2 - Find the after-tax return lo a corporation that...Ch. 2 - Prob. 33CCh. 2 - Prob. 34CCh. 2 - Prob. 1CPCh. 2 - Go to the website for The Walt Disney Co (DIS) and...Ch. 2 - Prob. 2WM
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- 11-1 After-Tax Cost of Debt Calculate the after-tax cost of debt under each of the following conditions: rd of 13%, tax rate of 0% rd of 13%, tax rate of 20% rd of 13%, tax rate of 35%arrow_forwardNonearrow_forwardUsing the information in Question 14 above, estimate the price of the bond for a 200 basis-point increase in interest rates. O A. $936 B. ³. $1002 C. $964 D. $1012arrow_forward
- A $10,000 bond quoted at 106 would sell for: A. $10,106. B. $106. C. $10,000. D. $10,600.arrow_forwardA municipal bond's yield to maturity is 7.78%. What is the taxable equivalent corporate bond yield using a 21% tax rate? 9.85% 6.15% 6.37% ○ 9.41%arrow_forwardRank the following municipal bonds in order from safest to riskiest: 1) tax-anticipation bonds, 2) moral obligation bonds, 3) public housing authority bonds, and 4) industrial development revenue bonds. OA) 1.2.3.4 O (B) 3.2.1.4 OIC 2,3,4,1 O ID) 2.4.3.1arrow_forward
- Assume a municipal bond has a yield of 5.75% and corporate bond of comparable maturity and credit rating has a yield of 7%. For each marginal tax rate below calculate the after tax yield for the municipal bond and the corporate bond. Type your answer below as a percentage (not decimals): • 10% Muni: Corporate: • 20% Muni: Corporate: • 25% Muni: Corporate: • 30% Muni: Corporate:arrow_forward4. 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_forwardSolve itarrow_forward
- 10. The bond interest expense reflected on the income statement should reflect an amount based on the a. effective interest rateb. stated interest ratec. nominal interest rated. face interest ratearrow_forward12. How would the amortization of discount on bonds payable affect the carrying amount of bond and net income, respectively? * a. Increase and Descrease b. Increase and Increase c. Decrease and Increase d. Decrease and Decreasearrow_forwardSuppose that bond A and bond B are identical municipal issues, except that bond A is a general obligation bond, and bond B is a revenue bond. Which of the following statements is true? O A. Bond A will have a lower credit risk and a lower yield B. Bond B will have a lower credit risk and a lower yield C. Bond A will have a higher credit risk and a lower yield D. Bond B will have a lower credit risk and a higher yieldarrow_forward
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