1- You can invest in taxable bonds that are paying a yield of 8.1 percent or a m
ID: 1175557 • Letter: 1
Question
1- You can invest in taxable bonds that are paying a yield of 8.1 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?
2-
Refer to Table 6–6.
copy link down
https://ezto-cf-media.mheducation.com/Media/Connect_Production/bne/Saunders_7e/chapter06/Table6-6.png
a. On May 23, 2016, what were the coupon rate, price, and yield on municipal bonds issued by the Transportation Program Bonds, Series 201 maturing on June 15, 2044?
b. What was the yield to maturity, on May 23, 2016, on Illinois (State) GOs Series 2013 maturing on July 1, 2038?
(For all requirements, round your answers to 2 decimal places. (e.g., 32.16))
Explanation / Answer
1)
a)
After-tax rate of return on taxable bond:
= Taxable bond return×(1-Tax rate)
= 8.10%×(1-21%)
= 6.40%
b)
He should buy “Municipal bond”
Related Questions
Navigate
Integrity-first tutoring: explanations and feedback only — we do not complete graded work. Learn more.