which bond would be prefer?
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- Kelly Phillips, an investor who resides in Livingston NJ, has a marginal tax rate of 28%. If a NJ municipal bond has a coupon rate of 5.83% and a YTM of 5.53%, what is the equivalent pretax yield on a taxable bond? a. 7.68% b. 8.10% c. 4.20% d. 3.98% e. 5.94%An investor in the 22 percent tax bracket is trying to decide which of two bonds to select: one is a 5.5 percent U.S. Treasury bond selling at par, the other is a municipal bond with a 4.25 percent coupon, which is also selling at par. Which of the two bonds hould the investor select? Why?An investor in the 22 percent tax bracket is trying to decide which of two bonds to select: one is a 5.5 percent U.S. Treasury bond selling at par; the other is a municipal bond with a 4.25 percent coupon, which is also selling at par. Which of these two bonds should the investor select? Why?
- 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?Ben and John are considering some bonds for investing. They want as much money after tax as possible. Their marginal rate is 24%. Their investment options include: City of Pasedena bonds with an interest rate of 6% ABC Corporate Stock with an interest rate of 8.5% State of California with an interest rate of 5.75% Apple Corporate stock with an interest rate of 8% City of Los Angeles with an interest rate of 6.25% Disney Corporate stock with an interest rate of 7.5% What is the after-tax interest rate for each of the 6 bonds they are considering? Which bond should they choose if they want the highest after tax return?1. Suppose the state of Indiana issued a tax-exempt bond to pay for student fees in its universities. The bond currently has a yield of 0.8 percent. 2. Suppose Mike is paying a marginal tax rate of 20% and Peter is paying a marginal tax rate of 30%. Calculate the equivalent taxable yields of this bond to both Mike and Peter. Mike: 0.8/(1-.2)=1 Peter: 0.8/(1-.3)= 2.67 3. Suppose that the yield on a Baa-rated corporate bond, a bond with the same credit rating as the state of Indiana, is 1.4 percent. Calculate the yield ratio between the tax-exempt bond vs the taxable bond, and briefly interpret what the yield ratio implies.
- If a 5 yr. AA- General Dynamics note is yielding a 35% tax bracket investor 7.56125% while a comparable maturity note from Philadelphia, Pennsylvania is yielding 4.8735%. If the inflation rate is 2.2765%, which bond would the investor prefer and why? If the marginal tax rate for the investor increases to 38.95%, which bond would the investor prefer? What is the critical tax rate?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.you invest in a municipal bond that pays a yield of 10%. If your marginal tax is 26%, what is the equIvalent yield on the taxable bond? (write your answer in percentage and round it to 2 decimal places)
- 15) If the municipal bond rate is 6% and the corporate bond rate is 9%, 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?7. An investor purchases a 30-year U.S. municipal bond for $840. The bond’s couponrate is 10 percent and, it still had twelve years remaining until maturity. If the investorholds the bond until it matures and collects the $1000 par value from the municipalbond and his marginal tax rate is 25 percent, what will be his after-tax (effective)yield to maturity? Make sure to show your work
