Suppose a municipal bond offers a 4% rate of interest. A corporate bond comes with a 6% coupon but the interest payment is subject to taxes. What is rate of tax at which you will be indifferent between the two bonds?
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A: With the given information, we can compare the yields as follows:
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A: After tax cost of debt = Before tax cost of debt * (1-tax rate)
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A: The question is based on the concept of Financial Accounting.
Q: What is the yield on a corporate bond with a $1000 face value purchased at a discount price of $925,…
A: The annual income (interest or dividends) from an investment is divided by the current price of the…
Q: What is the yield on a corporate bond with a $1000 face value purchased at a discount price of $950,…
A: GIVEN, FACE VALUE = $1000 PRICE = $950 INTEREST RATE = 8%
Q: bond
A: 1) To calculate which bond is more beneficial we have to calculate the YTM. Formula for YTM is: YTM…
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: Suppose an investor is considering a corporate bond with a 7.17% before-tax yield and a municipal…
A: For indifference, both bond should be equal after tax
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…
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A: Bonds are debt securities issued by Government or other companies, who seek to raise money from…
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…
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A: Cost of Debt It is the cost of raising capital of debt sources by the issuer(company).…
Q: Assume a municipal bond has a yield of 5.75% and corporate bond of comparable maturity and credit…
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A: Information Provided: Coupon rate = 8% Yield to maturity = 10% Tax rate = 21%
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A: A financial instrument that does not affect the ownership of the common shareholders or management…
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Q: Assume a municipal bond has a yield of 5.75% and corporate bond of comparable maturity and credit…
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A: A loan to a corporation or government that pays back a fixed rate of return is a bond.
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A: Given information in this question Face value =$1000 Coupon rate =6% Tax rate =21%
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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…
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A: Coupon rate = 8% Effective rate = 10% Tax rate = 35%
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%
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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…
Suppose a municipal bond offers a 4% rate of interest. A corporate bond comes with a 6% coupon but the interest payment is subject to taxes. What is rate of tax at which you will be indifferent between the two
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- An investor is comparing the following two bonds: a bond from ABC Corp which pays an interest rate of 9 percent per year and a municipal bond which pays an interest rate of 7.9 percent per year. The investor is in the 22 percent tax bracket. Which bond will give the investor a higher after-tax interest rate and for which reason? a. The ABC bond because it pays a 9 percent interest rate, while the municipal bond only pays 7.9 percent. b. None of these is correct. c. The ABC bond because it pays an equivalent after-tax rate of 11.5 percent, while the municipal bond pays out an equivalent after-tax rate of 10.1 percent. d. The municipal bond because it pays an equivalent after-tax rate of 7.9 percent, while the ABC bond pays out an after-tax 7.02 percent interest rate. e. The municipal bond because it pays an equivalent after-tax rate of 7.9 percent, while the ABC bond pays out an equivalent after-tax rate of 2.0 percent.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?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)
- If current Corporate Bond Rates are 4% and Municipal Bond Rates are 3%, at what marginal tax rate are you indifferent between the two bonds (meaning they have the same equivalent yield). (Round your answer to the nearest whole percent. No percent sign needed. i.e. 53)A municipal bond has a coupon rate of 5.83 percent and 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?A municipal bond carries a coupon rate of 4.25% and is trading at par. What would be the equivalent taxable yield of this bond to a taxpayer in a 35% combined tax bracket? (Round your answer to 2 decimal places.)
- You are trying to decide between a par value corporate bond carrying a coupon rate of 6.25% per year and a par value municipal bond that pays an annual coupon rate of 4.75%. Assuming all other factors are the same and you are in the 28% tax bracket, which bond should you choose and why?Suppose your company needs to raise $40.8 million and you want to issue 25-year bonds for this purpose. Assume the required return on your bond issue will be 5.8 percent, and you’re evaluating two issue alternatives: a 5.8 percent semiannual coupon bond and a zero coupon bond. Your company’s tax rate is 23 percent. a. How many of the coupon bonds would you need to issue to raise the $40.8 million? How many of the zeroes would you need to issue? (Do not round intermediate calculations. Round your coupon bond answer to the nearest whole number, e.g., 32 and your zero coupon bond answer to 2 decimals, e.g., 32.16.) b. In 25 years, what will your company’s repayment be if you issue the coupon bonds? What if you issue the zeroes? (Do not round intermediate calculations and enter your answers in dollars, not millions, rounded to the nearest whole number, e.g., 1,234,567.) c. Assume that the IRS amortization rules apply for the zero coupon bonds. Calculate the firm’s aftertax…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?
- 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: Corporate 25% Muni: Muni:| Corporate: · 30%1. Consider the decision to purchase either a 5-year corporate bond or a 5-year municipal bond. The corporate bond is a 12% annual coupon bond with a par value of $1,000. It is currently yielding 5%. The municipal bond has an 8.5% annual coupon and a par value of $1,000. It is currently yielding 7%. Which of the two bonds would be more beneficial to you? Assume that your marginal tax rate is 35%. 2. Calculate the duration of a $1,000 6% coupon bond with three years to maturity. Assume that all market interest rates are 7%.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?