Question

Peter Chan has just inherited some money when his uncle passed away recently. He wants to invest the money in a government bond because he wants to receive a steady stream of interest income and preserve his capital when the bond matures. His marginal tax rate on interest income is 40% and marginal tax rate on realized capital gains is 20%. He plans to buy a 4 percent coupon bond with ten years to maturity and pays interest semi-annually. He intends to hold the bond until maturity. The current price of the bond is $960.

Required:

- What is the before-tax yield to maturity (APR)? What is the before-tax EAR (effective annual rate)?
- What is the after-tax EAR (effective annual rate)?

Answer #1

Micheal inherited $10,000 from his uncle & is planning to
invest his money for 10 years. He is considering 2 options
1) a money market account with 2.4% annual interest rate,
compounded daily
2) a treasury note with 2.6% simple annual interest rate
compare these 2 investment options and determine which will pay
more interest over the 10 year period. If micheal chooses the
better option how much interest will he earn?
a) option 1 is better, micheal will earn...

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an annual coupon of 4% and a face value of $1,000. Jamal knows that
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Chester King has been a sailor for his entire life. As
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1. A Treasury bond has a 10% annual coupon and a 10.5%
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*
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b. The bond has a current yield less than 10%.
c. The bond sells at a discount.
d. a & c.
e. None of the above
2. J&J Company's bonds mature in 10 years, have a par value of
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1-You recently sold 50 shares of Microsoft stock to your brother
at a family reunion. At the reunion your brother gave you a check
for the stock and you gave your brother the stock certificates.
Which of the following best describes this transaction? *
A. This is an example of a direct transfer of capital.
B. This is an example of a primary market transaction.
C. This is an example of a money market transaction.
D. This is an example...

1-You recently sold 50 shares of Microsoft stock to your brother
at a family reunion. At the reunion your brother gave you a check
for the stock and you gave your brother the stock certificates.
Which of the following best describes this transaction? *
A. This is an example of a direct transfer of capital.
B. This is an example of a primary market transaction.
C. This is an example of a money market transaction.
D. This is an example...

Assume that you were recently hired as assistant to Jerry
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Intermediate
1. Multiple compounding periods: Find the future value of an
investment of $2,500 made today for the following rates and
periods:
a.
6.25 percent compounded semiannually for 12 years
b.
7.63 percent compounded quarterly for 6 years
c.
8.9 percent compounded monthly for 10 years
d.
10 percent compounded daily for 3 years
2. Multiple compounding periods: Find the present value of
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a.
8.9% compounded monthly for five years.
b. ...

6. If the general level of interest rates goes
down and I am holding a bond with a fixed coupon rate, I would
expect the value of my bond to
a.stay the same
b.double
c.increase
d.decrease
e.not enough information to tell
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a.Is about doubling the present value to get the future
value.
b.Says that 72 divided by the payment gives you the number of
years to double.
c.Says that the rate divided by 72 gives you the...

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