Question

A tax client has the opportunity to purchase a corporate bond with a yield to maturity of 6% OR a municipal bond with a yield to maturity of 4%. They are in the 33.33% marginal tax bracket. Please advise them of the tax implications of each investment choice.

Answer #1

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.

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.

You can invest in either a corporate bond which
yield 4.85%, or a municipal bond (of equal risk) which yield
3.43%. Which investment should you
choose?
Ignore state income taxes:
A.
Your marginal personal tax rate is 35%
B. Your marginal personal tax rate is
14%
Please show your calculation for each investor
from (Muni to Corporate bond, and once again, from Corporate to
Muni bond equivalent interest rates). In other
words,
your calculations will cover two different
situations for parts...

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.

1. A 100-year corporate bond has a coupon rate of
9% with semi-annual payments. If the current value
of the bond in the marketplace is $400, then what is the
Yield-to-Maturity (YTM)?
2. How much do you pay for a zero coupon government bond that
has a term of 30 years, an interest rate of 9%,
and a par value of $1000.
3. A taxable bond has a yield of 9% and a
municipal bond has a yield of 4.6%....

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.)

Create an amortization table for a corporate bond which has a
yield to maturity (YTM) of 4% that will last 15 years and has a
coupon rate of 4%.
If you could use excel and show the formulas that would be
great!

A
BBB-rated corporate bond has a yield to maturity of 6.1% a US
treasury security has yield to maturity of 4.8%.these yield are
quoted as APRs with semiannual compounding.both bonds pay
semi-annual coupons at a rate of 7.5% and have five years to
maturity
a.what is the price (expressed as a percentage of the face
value) of the treasury bond ?
b.what is the price (expressed as a percenatge of the face
value ) of the BBB-rated corporate bond?
c.what...

BBB -rated corporate bond has a yield to, maturity of 8.5%.US
treasury security has a yield to maturity of 7.0%. These yields are
quoted as APR with semiannual compounding, Both pay semiannual
coupons of 7.3% and hhave five years to maturity.
a. What is the price (expressed as a percentage of the face
value) of the treasury bond?
b. What is the price (expressed as a percentage of the face
value) of the BBB rated corporate bond?
c.What is the...

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