The coupon rate on a tax-exempt bond is 5.6%, and the rate on a taxable bond is 8%. Both bonds sell at par. At what tax bracket (marginal tax rate) would an investor be indifferent between the two bonds?
Q: What's the taxable equivalent yield on a municipal bond with a yield to maturity of 3.8 percent for…
A: Taxable equivalent yield on a municipal bond refers to the return that we require on a taxable…
Q: What is the cost of debt for Kenny Enterprises if the bond sells at $938.10? % (Round to two decimal…
A: Answer A. $938.10 Given Fv= 1000 Pv=938.10 Coupon rate = 10.2% Pmt= 10.2×1000/2 = 102/2 = 51 N=…
Q: Municipal bonds are yielding 4.4 percent if they are insured and 4.7 percent if they are uninsured.…
A: Bonds are the debt security which is offered or issued by the corporates or the governments to…
Q: What should be the coupon rate on the new bond issue? Round your answer to one decimal place.…
A: Bonds are long-term debt instruments by which companies raise funds. They require a fixed interest…
Q: Suppose you invest in a municipal bond that pays a yield of 149%. If your marginal tax is 15%, what…
A: A municipal bond is a government debt security issued to raise long-term debt funds. The yield…
Q: If the current yield of a bond goes down from 6.9% to 4.8%, by what percent does the market price…
A: In terms of finance, current yield can be defined as the return on the bond investment. The formula…
Q: When a coupon bond pays coupon at the same rate as its market yield, the coupon bond is priced at…
A: When the coupon rate and yield to maturity is equal then bonds trade at par, when the coupon rate is…
Q: A firm has an outstanding bond paying a coupon rate of 12%. The firm's tax rate is 34%. If the…
A: The question is based on the concept of Financial Accounting.
Q: Assuming the bonds will be rated AA, what will the price of the AA-rated bonds be? b. How much…
A: Face Value = $1,000 Coupon Rate = 10.2% Time Period = 5 Years AA rated yield = 9.8%
Q: b) You can invest in taxable bonds that are paying a yield of 9.50% or a municipal bond paying a…
A: A security bond is a legally enforceable promise to pay the government if you or your employee…
Q: A municipal bond carries a coupon of 6.75% and is trading at par. What is the equivalent taxable…
A: The formula to compute equivalent taxable yield is as follows:
Q: Suppose a municipal bond offers a 4% rate of interest. A corporate bond comes with a 6% coupon but…
A: In order to meet the capital expenditure like construction of building for the public, highways, etc…
Q: what is the equIvalent yield on the taxable bond?
A: Tax Equivalent Yield: It is the return needed for a taxable bond to equal the yield of the…
Q: What is the yield to maturity on Fox Inc.'s bonds if its after-tax cost of debt is 9% and its tax…
A: After Tax Cost of Debt is calculated as Yield to maturity minus tax shield.
Q: What is the yield on a corporate bond with a $1000 face value purchased at a discount price of $950,…
A: given information face value = $1000 discount price = 950 interest rate = 6%
Q: If the municipal bond rate is 6% and the corporate bond rate is 8%, what is the marginal tax rate,…
A: The taxable equivalent yield is 8% in this scenario whereas tax free yield is 6%. We need to find…
Q: Which of the following statements is most correct? All of the statements are correct. The yield…
A: Bond yields : A bond's yield is the re-visitation of an investor from the bond's coupon (interest)…
Q: a. What is the firm's after-tax cost of debt on the bond? % (Round to two decimal places.)
A: In this we need to calculate the yield to maturity of bond and than calculate after tax of bond.
Q: The Holmes Company's currently outstanding bonds have a 7% coupon and a 13% yield to maturity.…
A: After tax cost of debt = Before tax cost of debt * (1-tax rate)
Q: When coupon payment is expressed as a percentage of the bond’s par value and annualized by…
A: Coupons are the annual interest rates paid on a bond. It is usually expressed as a percentage of the…
Q: The coupon rate on an issue of debt is 8%. The yield to maturity on this issue is 10%. The corporate…
A: Information Provided: Coupon rate = 8% Yield to maturity = 10% Tax rate = 21%
Q: You can invest in taxable bonds that are paying a yield of 9.7 percent or a municipal bond paying a…
A: A financial instrument that does not affect the ownership of the common shareholders or management…
Q: Which of the following statements is correct? Group of answer choices The actual capital gains yield…
A: The bonds carry the annual coupon payment and there are face value of bond that is paid on the…
Q: An investor is comparing the following two bonds: a bond from ABC Corp which pays an interest rate…
A: Municipal bonds are tax free interest bonds. Therefore, no tax will be levied on interest…
Q: . Which of the following statements is most correct? a. If interest rates increase, a 10-year zero…
A: The question is based on the concept of bond valuation.
Q: If the coupon rate on a bond is 8 percent and current market interest ratesare 6 percent, should…
A: Given that, coupon rate on a bond is 8 percent and current market interest rates are 6 percent.
Q: Assume a municipal bond has a yield of 5.75% and corporate bond of comparable maturity and credit…
A: After tax Yield on Municipal Bond = Before Tax Yield on Municipal Bond After tax Yield on Municipal…
Q: You are trying to decide between a par value corporate bond carrying a coupon rate of 6.25% per year…
A: A loan to a corporation or government that pays back a fixed rate of return is a bond.
Q: A bond issued by the Irbid Municipal is priced to yield 7.80%. If you are in the 15% tax bracket his…
A: Tax Equivalent Yield = Tax free municipal yield / (1 -tax rate)
Q: If a company's bonds are selling at a discount, then Select one: a. The current interest rates…
A: If a company sell bond at a discount then it means that the going interest rate is more than the…
Q: What is the taxable equivalent yield on a municipal bond with a yield to maturity of 4 percent for…
A: In this question we need to compute the taxable equivalent yield on a municipal bond.
Q: If a 5 yr. AA- General Dynamics note is yielding a 35% tax bracket investor 7.56125% while a…
A: Tax equivalent yield is used to determine the yield from a municipal bond or a note.
Q: If the coupon rate of a bond is 3.05% and the yield to maturity is 6.48%, and if a bondholder has a…
A: After-tax yield = Yield to maturity(1 - Tax rate) where, Yield to maturity = 6.48% Tax rate = 21%
Q: A municipal bond has a yield to maturity of 3.8 percent. What corporate bond yield would make an…
A: Yield on Municipal Bond should be equal to corporate bond yield * (1-tax rate), for indifference…
Q: Simple Corp. has one bond issue oustanding, with a maturity of 10.5 years, a coupon rate of 3.6% and…
A: For a bond Yield to maturity shows the effective interest payment on the bond.
Q: If the nominal rate of return on a corporate bond is 15%, the pure rate is 4%, and the risk premium…
A: Inflation refers to rise in prices of goods and services over a period of time. Inflation measures…
Q: what is the equivalent yield on the taxable bond?
A: Equivalent Yield on Taxable Bond: It refers to the yield on the taxable bond needed to be made equal…
Q: The Holmes Company's currently outstanding bonds have an 8% coupon and a 13% yield to maturity.…
A: Cost of debt: A bond is an organization's source of funds. The firm issues the bonds to investors…
Q: Suppose you invest in a municipal bond that pays a yield of 4. If your marginal tax is 17%, what is…
A: Here, Municipal Bond Yield is 4% Marginal tax Rate is 17%
Q: If the bondholder's required rate of return equals the coupon interest rate, the bond will sell at…
A: Introduction: Bonds: When company require funds then they go by issuing bonds. Bonds pay interest…
Q: An investor is comparing the following two bonds: a bond from ABC Corp which pays an interest rate…
A: Taxation-Taxation means imposing a tax on individuals and different types of organizations. Which…
Q: a one year holding period bond with no coupon payments, the interest rate is the same as the YTM…
A: Step 1 The level of coupon is an annual yield on a stake that an investor can expect to earn if he…
Q: If the market rate of interest is 15 percent and the bond interest rate is 10%, the bonds will sell…
A: As posted multiple independent questions we are answering only first three questions kindly repost…
Q: Suppose you invest in a municipal bond that pays a yield of 9%. If your marginal tax is 17%, what is…
A: The tax-equivalent yield is the rate of return necessary for a taxable bond to equal the rate of…
The coupon rate on a tax-exempt bond is 5.6%, and the rate on a taxable bond is 8%. Both bonds sell at par. At what tax bracket (marginal tax rate) would an investor be indifferent between the
two bonds?
Trending now
This is a popular solution!
Step by step
Solved in 3 steps with 4 images
- 1. A municipal bond has a coupon rate of 5.83 percent and a YTM of 5.53 percent. If an investor has a marginal tax rate of 28 percent, what is the equivalent pretax yield on a taxable bond? IF RELEVANT SHOW CALCULATOR STEPSIf the municipal bond rate is 6% and the corporate bond rate is 8%, what is the marginal tax rate, assuming investors are indifferent between the two bonds?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?
- b) 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:Compare the coupon rate and the interest rate regarding bonds. What is a par value? Describe the impact of a tax shield on fixed income yields.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)) b. Which security bond should you buy? a b. Rate of return The security bond one should buy is %
- 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.Suppose your marginal federal income tax rate is 25 percent. 1. What is your after-tax return from holding a one-year corporate bond with a yield of 5.25 percent? (1 pt) 2. What is your after-tax return from a holding a one-year municipal bond with a yield of 4 percent? (1 pt) 3. How would you decide which bond to hold? (Assume that Both bonds carry the same risk.) (1 pt)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)
- Suppose you invest in a municipal bond that pays a yield of 9%. If your marginal tax is 29%, what is the equivalent yield on the taxable bond? (write your answer in percentage and round it to 2 decimal places)Municipal bonds are yielding 4.4 percent if they are insured and 4.7 percent if they are uninsured. Your marginal tax rate is 28 percent and the inflation rate is 1.645%. Your equivalent taxable yield on the insured bonds is _____ percent and on the uninsured bonds is _____ percent. How would your answers change if your marginal tax rate falls to 13.5% and the inflation rate increases to 2.0639%? What would happen to the YTM of the uninsured bond if negative news was announced resulting in a decline in its credit rating? What would happen to the YTM of the insured bond if it suddenly lost its insurance?For tax purposes, the implicit annual interest for any one year on a zero coupon bond is equal to Multiple Choice zero. the current yield. the face value minus the current market value. the face value multiplied by the current market rate of interest. the annual change in the bond's value as determined by amortizing the loan.