Essentials of Investments (The Mcgraw-hill/Irwin Series in Finance, Insurance, and Real Estate)
10th Edition
ISBN: 9780077835422
Author: Zvi Bodie Professor, Alex Kane, Alan J. Marcus Professor
Publisher: McGraw-Hill Education
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Chapter 2, Problem 15PS
An investor is in a 30% combined federal plus stale tax bracket. If corporate bonds offer 9% yields, what yield must municipals offer for the investor to prefer them to corporate bonds (LO 2-1)
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An investor is in a 30% combined federal plus state tax bracket. If corporate bonds offer 8% yields, what yield must municipals offer for the investor to prefer them to corporate bonds?
An investor is in a 30% tax bracket. If corporate bonds offer 9% yields, what must municipals offer for the investor to prefer them to corporate bonds?
An investor is in a 30% tax bracket. If corporate bonds offer 6% yields, what must municipals offer for the investor to prefer them to corporate bonds? (Round your answer to 2 decimal places.)
Chapter 2 Solutions
Essentials of Investments (The Mcgraw-hill/Irwin Series in Finance, Insurance, and Real Estate)
Ch. 2 - Prob. 1PSCh. 2 - Why do most professionals consider the Wilshire...Ch. 2 - Prob. 3PSCh. 2 - What are the major components of the money market?...Ch. 2 - Describe alternative ways that an investor may add...Ch. 2 - Why are hightaxbracket investors more inclined to...Ch. 2 - Prob. 7PSCh. 2 - How does a municipal revenue bond differ from a...Ch. 2 - Prob. 9PSCh. 2 - 10. What is meant by limited liability? (LO 2-1)
Ch. 2 - Which of the following correctly describes a...Ch. 2 - Why are money market securities sometimes referred...Ch. 2 - A municipal bond carries a coupon rate of 4.25%...Ch. 2 - Suppose that short-term municipal bonds currently...Ch. 2 - An investor is in a 30% combined federal plus...Ch. 2 - Find the equivalent taxable yield of the municipal...Ch. 2 - Prob. 17PSCh. 2 - Prob. 18PSCh. 2 - Prob. 19PSCh. 2 - Using the data in the previous problem, calculate...Ch. 2 - Prob. 21PSCh. 2 - Prob. 22PSCh. 2 - A T-hill with face value $10.000 and 87 days to...Ch. 2 - Prob. 24PSCh. 2 - Prob. 25PSCh. 2 - What options position is associated with: (LO 2-3)...Ch. 2 - Why do call options with exercise prices higher...Ch. 2 - Both a call and a put currently are traded on...Ch. 2 - Prob. 30PSCh. 2 - Examine the stocks listed in Figure 2.8. For what...Ch. 2 - Find the after-tax return lo a corporation that...Ch. 2 - Prob. 33CCh. 2 - Prob. 34CCh. 2 - Prob. 1CPCh. 2 - Go to the website for The Walt Disney Co (DIS) and...Ch. 2 - Prob. 2WM
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- Consider an investor who is in a 30% combined federal plus state tax bracket. If a corporate bond offers 5% yield, what yield must municipals offer for the investor so that she prefers the municipal bond to the corporate bond? Assume that the investor resides in the same municipality as the issuer. Answer in percentage. Municipal bonds must offer a yield of at least _______________ Group of answer choices 1.50% 2.50% 3.50% 5.00% 7.14%arrow_forwardAn investor purchases one municipal and one corporate bond that pay rates of return of 7.2% and 9.1%, respectively. If the investor is in the 15% marginal tax bracket, his or her after-tax rates of return on the municipal and corporate bonds would be ________ and ______, respectively. A. 6.12%;7.735% B. 7.2%;7.735% C. 7.2%;9.1% D. 8.471%;9.1%arrow_forwardSuppose the interest rate on a taxable corporate bond is 4 percent while a municipal, tax exempt bond has an interest rate of 3 percent, and they are similar in every other way. Assuming the income tax rate is 30 percent, calculate the after tax interest rate on the corporate bond. Is it higher or lower than the after tax return on the municipal bond?arrow_forward
- 5) An investor purchases one municipal and one corporate bond that pay rates of return of 8% and 10%, respectively. If the investor is in the 22% marginal tax bracket, what will be his or her after-tax rates of return on the municipal and corporate bonds?arrow_forwardAn investor purchases one municipal and one corporate bond that pay rates of return of 6% and 8%, respectively. If the investor is in the 24% marginal tax bracket, his or her after-tax rates of return on the municipal and corporate bonds would be ________ and ______, respectively. A) 6%; 8% B) 4.5%; 6% C) 4.5%; 8% D) 6%; 6.08%Please provide justificationarrow_forwardAn investor purchases one municipal and one corporate bond that pay rates of return of 7.2% and 9.1%, respectively. If the investor is in the 12% marginal tax bracket, his or her after-tax rates of return on the municipal and corporate bonds would be ________ and ______, respectively. A) 7.2%; 9.1% B) 7.2%; 8.008% C) 6.12%; 7.735% D) 8.471%; 9.1% Provide an accurate answer with justification.arrow_forward
- A Corporation believes that it can sell long term-bonds with an 8% coupon rate, although the effective rate is 10%. If such bonds are part of A Corporation’s financing plans for next year, what is the after-tax (30% tax rate) cost of bonds for purposes of calculating the corporation’s cost of capital. A. 5.44% B. 7% C. 10% D. 14.00%arrow_forwardA Corporation believe that it can sell long term-bonds with an 8% coupon rate, although the effective rate is 10%. If such bonds are part of A Corporation’s financing plans for next year, what is the after-tax (35% tax rate) cost of bonds for purposes of calculating the corporation’s cost of capital. a. 6.5% b. 5.2% c. 7.0% d. 10%arrow_forwardSuppose you are a wealthy individual paying 35% tax on income. What is the expected after-tax yield on each of the following investments? A municipal note yielding 7.0% pretax. A Treasury bill yielding 11.2% pretax. A floating-rate preferred stock yielding 7.4% pretax. How would your answer change if the investor is a corporation paying tax at 35%?arrow_forward
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