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 c. are issued only by the U.S. Treasury. O d. are issued at a premium. O e. are valued using simple interest. K
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- 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?Calculate the cost of capital of a bond selling to yeild 13% for the purchaser of the bond. The borrowing firm faces a tax rate of 34% a. 8.58% b. 10.58% c. 34% d. 13.58%7A-1. Which of the following statements is most correct?a. If interest rates increase, a 10-year zero coupon bond will drop inprice by a greater percentage than will a 10-year 8 percent couponbond.b. One nice thing about zero coupon bonds is that individual investorsdo not have to pay any taxes on a zero coupon bond until itmatures, even if they are not holding the bonds as part of a taxdeferred account.c. If a bond with a sinking fund provision has a yield to maturitygreater than its coupon rate, the issuing company would prefer tocomply with the sinking fund by calling the bonds in at par ratherthan buying the bonds back in the open market.d. Statements a and c are correct.e. All of the statements above are correct.
- Which of the following is true about “zeroes” (i.e. zero-coupon bonds)? (Group of answer choices) Zeroes sell at a premium compared to other bonds Zeroes pay more interest than a Treasury bill Zeroes are only issued by US corporations Zeroes only receive payment from price appreciation Zeroes have a shorter maturity than other bondsWhich of the following statements is right? Group of answer choices a)Ignoring the liquidity risk, the 10-treasry bond should have the same interest rate as the 10-year corporate bond. b)Ignoring the default risk, the 10-treasry bond should have the same interest rate as the 10-year corporate bond. c)The return of the 10-year treasury bond must be less than that of the 10-year corporate bond d)The return of the 10-year treasury bond must be greater than that of the 10-year corporate bond7A-1. Which of the following observations is the most accurate? a. As interest rates rise, the price of a 10-year zero coupon bond would fall by a larger amount than the price of a 10-year 8 percent coupon bond.b. One of the benefits of zero coupon bonds is that private borrowers do not have to pay taxes on them before they expire, particularly though they are not keeping them in a tax-deferred portfolio.c. Where the yield to maturity on a bond with a sinking fund clause is higher than the coupon rate, the borrowing party will have to comply with the sinking fund by calling the bonds in at par rather than purchasing them back on the open market.d. All a and c are valid statements.e. All of the above claims are true.
- A municipal bond has a yield to maturity of 3.8 percent. What corporate bond yield would make an investor in the 29 percent tax bracket indifferent between two bonds, all else the same?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?Which of the following statements is not correct? a) The export value of the bond; the value the investor pays when buying bonds b) Nominal value of the bond; is the value written on the bond c) Another reason for the difference in bond market prices is the dividend paid to bonds. d) Periodic interest amounts on bonds are calculated at nominal value. e) Market value of a bond is equal to the present value of the interest to be paid by the bond and the principal amount to be paid at the end of maturity. ------------------ What is the market value of İdil Gıda's bond with a nominal value of 15000 USD, maturity of 3 years and 30% annual interest payment, assuming that the desired yield rate is 36%? a) 12500b) 13494c) 9000d) 5456e) 7594 ============ What is the market value of Beril Gıda A.Ş.'s bond with a nominal value of USD 12,000, maturity of 5 years and an annual interest payment of 25%, when the desired rate of return is 25%? a) 18000b) 15000c) 12000d) 16000e)…
- Consider the following information for a period of years: Long-term government bonds Long-term corporate bonds Inflation Arithmetic Mean 7.8% a. Long-term government bonds b. Long-term corporate bonds 7.9 3.5 a. What is the real return on long-term government bonds? Note: Do not round intermediate calculations and enter your answer as a percent rounded to 2 decimal places, e.g., 32.16. b. What is the real return on long-term corporate bonds? Note: Do not round intermediate calculations and enter your answer as a percent rounded to 2 decimal places, e.g., 32.16. 4.25% %Corporate bonds issued by Johnson Corporation yield 8% interest at this time. Equal risk municipal bonds yield 6%. At what tax rate would an investor be indifferent to buying one or the other?Calculate the after-tax return of a(n) 5.625.62 percent, 20-year, A-rated corporate bond for an investor in the 1515 percent marginal tax bracket. Compare this yield to a(n) 3.683.68 percent, 20-year, A-rated, tax-exempt municipal bond, and explain which alternative is better. Repeat the calculations and comparison for an investor in the 3535 percent marginal tax bracket.