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?
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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?
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- 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.2. Which of the following is a reason why zero-coupon bonds are the best way for high-income taxpayers to extract maximum value from tax-exempt state and local government bonds? a.The investments pay interest continually. b.The interest earned on the accumulated principal and interest is not tax-exempt. c.Zero-coupon bonds are high-risk, high-reward bonds. d.Zero-coupon bonds include more transaction fees. e.Zero-coupon bonds allow the investor to make additional tax-exempt investments.7. Zero-coupon bonds are the best way for high-income taxpayers to extract maximum value from tax-exempt state and local government bonds because: a.Zero-coupon bonds are sold for nearly their full face value and provide most of their income in the form of interest. b.Zero-coupon bonds allow the investor to make additional tax-exempt investments. c.The interest earned on the accumulated principal and interest is not tax-exempt. d.The investments pay interest continually. e.Zero-coupon bonds include more transaction fees.
- The after-tax cost of debt capital is equal to the yield to maturity on a corporate bond multiplied by (1 - T). Select one: True O False(Q8) If income tax rates rise, then the prices of municipal bonds will fall. O the interest rate on municipal bonds will rise. none of the above O the interest rate on Treasury bonds will rise.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.
- 5. If bonds issued by a corporation are sold at a discount, is the market rate of interest greater or less than the contract rate?D4) When estimating cost of debt, the coupon rate is used as the cost of debt. Group of answer choices True False The after tax or effective cost of debt is increased by the tax savings since interest payments on debt are tax deductible. Group of answer choices True False6. What do municipal bonds typically have a lower interest rate than corporate bonds?
- Bond A is a municipal bond and Bond B is a corporate bond. If you pay a very high tax rate, which bond do you prefer? Select one: a. B b. A c. A=BWhat are municipal bonds? What characteristics makes them especially attractive to high-income investors?4. Explain or illustrate before-tax cost of debt and after-tax cost of debt. 5. What are the relationships between: a) interest rate and cost of debt; b) default risk and cost of debt; and c) bond rates and interest rates? 6. What is the difference between yield to maturity on outstanding debt and coupon rate? Which is a better measure of cost of debt between the two? 7. How is COST OF preferred equity computed?
