2. Which of the following is a reason why zero-coupon bonds are the best way for high-income taxpayers to extract maximum value from tax-exempt state and local government bonds? a.The investments pay interest continually. b.The interest earned on the accumulated principal and interest is not tax-exempt.

2. Which of the following is a reason why zero-coupon bonds are the best way for high-income taxpayers to extract maximum value from tax-exempt state and local government bonds? a.The investments pay interest continually. b.The interest earned on the accumulated principal and interest is not tax-exempt.

Financial Reporting, Financial Statement Analysis and Valuation

8th Edition

ISBN:9781285190907

Author:James M. Wahlen, Stephen P. Baginski, Mark Bradshaw

Publisher:James M. Wahlen, Stephen P. Baginski, Mark Bradshaw

Chapter6: Accounting Quality

Section: Chapter Questions

Problem 4QE

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7. Zero-coupon bonds are the best way for high-income taxpayers to extract maximum value from tax-exempt state and local government bonds because: a.Zero-coupon bonds are sold for nearly their full face value and provide most of their income in the form of interest. b.Zero-coupon bonds allow the investor to make additional tax-exempt investments. c.The interest earned on the accumulated principal and interest is not tax-exempt. d.The investments pay interest continually. e.Zero-coupon bonds include more transaction fees.
2. Which statement is not correct? a) Municipal bonds tend to have a lower yield than Treasuries b) Municipal bonds tend to have a lower rating than Treasuries c) Municipal bonds are "risk free" securities d) Municipal bonds are an interesting investment from a tax perspective
Which of the following is incorrect about debt financing? A. Debt financing always generates excess returns which benefits equity investors b. One benefit of debt financing is that interest on most debt is fixed c. One benefit of debt financing is that interest is a tax deductible expense d. It increases financial leverage
Identify the following as either an advantage or a disadvantage of bond financing for a company. a. Bonds do not affect owner control. b. A company earns a lower return with borrowed funds than it pays in interest. c. A company earns a higher return with borrowed funds than it pays in interest. d. Bonds require payment of periodic interest. e. Interest on bonds is tax deductible. f. Bonds require payment of par value at maturity.
What will happen to the price of bonds, quantity of bonds and interest rate if bonds become riskier than stocks and the government starts spending more than their tax revenue? Show this on a graph.
An investor seeking relatively low default risk investments combined with some type of favorable tax treatment and inflation protection should consider which of the following?(1) Insured municipal bonds. (2) TIPS. (3) Zero coupon Treasury bonds. (4) Series I savings bonds. (5) Series HH savings bonds. a. 1, 2 and 3. b. 1, 2 and 4. c. 2 and 4. d. 2, 4 and 5.
Zero coupon bonds: O a. create annual taxable income to individual bondholders. O b. create a tax deduction for the issuer only at maturity. O care issued only by the U.S. Treasury. O d. are issued at a premium. O e. are valued using simple interest.
Why do most municipal bonds pay lower interest than riskless Treasury bonds?
STRIPS are: a) Government-backed schemes that allow investors to hedge against market risk. b) Government bonds linked to inflation rates. c) Tax-free saving accounts aimed at increasing retirement income d) Corporate bonds
These are corporate bonds that have a higher rate of return with a higher level of risk? Group of answer choices Revenue bonds Junk bonds GOBs Tax increment bonds
Select the correct statement: The value of a premium bond will fall over time, if cost of debt (rd) decreases The value of a discount bond will fall over time, if cost of debt (rd) does not change The value of a discount bond will increase ove time, if cost of debt (rd) does not change The value of a premium bond will increase over time, if cost of debt (rd) does not change
(b) Jim Thome has prepared the following list of statements about bonds. 1. Bonds are a form of interest-bearing notes payable. 2. When seeking long-term financing, an advantage of issuing bonds over issuing common stock is that stockholder control is not affected. 3. When seeking long-term financing, an advantage of issuing common stock over issuing bonds is that tax savings result. 4. Secured bonds have specific assets of the issuer pledged as collateral for the bonds. 5. Secured bonds are also known as debenture bonds. 6. Bonds that mature in installments are called term bonds. 7. A conversion feature may be added to bonds to make them more attractive to bond buyers. 8. The rate used to determine the amount of cash interest the borrower pays is called the stated rate. 9. Bond prices are usually quoted as a percentage of the face value of the bond. 10. The present value of a bond is the value at which it should sell in the marketplace. Instructions Identify each statement as true or…