Question

An investor is in the 28 percent federal tax bracket. For this investor, a municipal bond paying 4 percent interest is equivalent to a corporate bond paying ________ interest.

Answer #1

Assuming municipal bonds are tax free

Interest on corporate bonds are taxable

Hence to earn a required rate of interest of 4% corporate tax bond should provide a post tax rate of interest of 4%

Hence after tax rate of return required from corporate bonds=4%

or pre tax rate of return *(1- tax rate)=4%

or pre tax rate of return*(1-28%)=4%

or pre tax rate of return =4%/72%= 5.5556%

An investor is in the 28 percent federal tax bracket. For this investor, a municipal bond paying 4 percent interest is equivalent to a corporate bond paying 5.5556% interest.

An investor in the 35 percent tax bracket may purchase a
corporate bond that is rated A and yields 6.0 percent. The investor
may also buy an A-rated municipal bond with a 3.9 percent yield.
Why may the corporate bond be preferred? (Assume that the terms of
the bonds are the same.)

An investor is attempting to decide between the purchase of a
tax-free municipal bond or a corporate bond. She is in the 32% tax
bracket (rate). A municipal bond yields 2.2% interest and a
corporate bond yields 3.1% interest. Which should she purchase?
Please state the reason.

Assume you are in the 20 percent tax bracket and purchase a 7.6
percent municipal bond. Calculate the taxable equivalent yield for
this investment.

A 4.25 percent coupon municipal bond has 10 years left to
maturity and has a price quote of 108.75. The bond can be called in
five years. The call premium is one year of coupon payments. What
is the bond's taxable equivalent yield for an investor in the 28
percent marginal tax bracket? (Assume interest payments are paid
semiannually and a par value of $1,000.)

based on the after-tax returns, at what federal tax rate is an
investor better off choosing a tax-exempt 5.31 percent municipal
bond over a taxable 7.62 percent corporate bond?
The after-tax return on the corporate bond when the tax rate
is 10% is ___% (round to two decimal places)

A 3.25 percent coupon municipal bond with a par value of $5000
has 12 years left to maturity and has a current price of $4937.50.
The bond can be called in five years. The call premium is one year
of coupon payments. What is the bond's taxable equivalent yield for
an investor in the 35 percent marginal tax bracket? (Assume
interest payments are paid semi-annually and a par value of
$5,000.) Hint: Calculate the yield of this municipal bond (and...

a.) An individual in the 28 percent federal income tax bracket
and 15 percent long-term capital gains tax bracket bought and sold
the following securities during the year:
Cost Basis of Stock
Proceeds of
Sale
ABC
$24,500
$28,600
DEF
35,400
31,000
GHI
31,000
36,000
What are the taxes owed on the short-term capital gains?
b.) An individual in the 35 percent
federal income tax bracket and 15 percent long-term capital gains
tax bracket bought and sold the...

A tax-exempt municipal bond pays 5.4% coupon interest annually
while a similar taxable bond is paying 7.5% annually. Taxpayers in
the _____ % marginal tax bracket and above would be better off
investing in the tax-exempt bond.
b) 15
d) 28
a) 10
c) 25

An investor is considering whether to invest in a general
obligation municipal bond and a Treasury bond. The annual interest
rate on the municipal bond is 4% and that on the Treasury bond is
5%. Assume that both bonds do not carry any risk. Which bond would
the investor prefer if his marginal tax rate on interest income is
10%.
The investor is indifferent between the two bonds
The Treasury bond
The municipal bond
Not enough information is provided

A tax-exempt municipal bond has a yield to maturity of 3.91%. An
investor, who has a marginal tax rate of 33.00%, would prefer and
an otherwise identical taxable corporate bond if it had a yield to
maturity of more than ____%.
Round to 2 decimal places.

ADVERTISEMENT

Get Answers For Free

Most questions answered within 1 hours.

ADVERTISEMENT

asked 7 minutes ago

asked 20 minutes ago

asked 24 minutes ago

asked 24 minutes ago

asked 24 minutes ago

asked 24 minutes ago

asked 25 minutes ago

asked 28 minutes ago

asked 41 minutes ago

asked 50 minutes ago

asked 50 minutes ago

asked 57 minutes ago