True or False -Positive of a municipal bond over a corporate bond is that intere

ID: 2773065 • Letter: T

Question

True or False

-Positive of a municipal bond over a corporate bond is that interest from a municipal bond is tax exempt.

-a $1000 par bond is purchased for $960, has 8 years to maturity, a 5.5% coupon rate, the YTM is 6.15%

-Conceptof compounding is that you earn dividends on someone else's capital

-I lend $1000 and I'm paid back $1070 one year later, my rate of return is 6%.

-Risk return theory states that the higher the risk, the higher the required return.

-Presentvalue of $50,000 to be received 10 years from now at 8% interest is about $23,160.

-Current share price is $25, most recent dividend is $1.25, so dividend yield is 5%.

-Net income is $2 million. A $1.20 dividend is paid to the 1 million shareholders. Retained earnings is $200,000.

-Present value for a cash flow stream of $300 per year for 5 years at 3% is $1373.91.

-If an additional $1,000,000 in income is earned and the marginal tax is 34% an additional $340,000 in taxes will be paid.

-Positive of a municipal bond over a corporate bond is that interest from a municipal bond is tax exempt.

True

Note : Municipal bonds provide tax exemption from federal taxes

-a $1000 par bond is purchased for $960, has 8 years to maturity, a 5.5% coupon rate, the YTM is 6.15%

True

Working

YTM should be

YTM = rate(nper,pmt,pv,fv)

YTM = rate(8,55,-960,1000)

YTM = 6.15%

-Concept of compounding is that you earn dividends on someone else's capital

False

Note : Concept of compounding is that you reinvest your dividend in purchasing additional stock

-I lend $1000 and I'm paid back $1070 one year later, my rate of return is 6%.

False

Working

Rate of return = (1070-1000)/1000 = 7%

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