Question

QUESTIOn 31

Jake Hanson lives in New York and is considering purchasing a bond. He has settled on either a 5-percent municipal bond offered by New York or a 7-percent corporate bond offered by The Greenhorn Corporation, which has headquarters in New York. Jake needs some guidance and would like you to help him determine which bond will provide him with the greatest return. Which of the following information do you need to obtain before you can make the appropriate recommendation?

His other holdings

The business of his employer

How long he has lived in New York

His current tax bracket

1 points   

QUESTION 32

Investing in a real-estate DPP program includes which of the following advantages?

I. Depreciation

II. Appreciation

III. Depletion

IV. Cash flow

I, II, III, and IV

I and II

III and IV

I, II, and IV

1 points   

QUESTION 33

Duke Wallwalker purchased an LTSBR Corporation convertible bond at 95on January 20. The bond is convertible at $40, and he converts his bond into stock on January 21, three years later. If the bond is trading at 104 and the common stock is trading at $42, for tax purposes, these transactions will result in

a $90 gain

a $10 gain

neither a gain nor a loss

a $10 loss

Answer 1

ANS 31) = His current Tax bracket information is needed to give an appropriate recommendation , as his tax bracket will further determine from which bond he can earn maximum return, as coupon income from corporate bond are tax-deductible whereas there are no tax on municipal bond coupon income. If he comes in less tax bracket (i.e taxes are lesser then the difference in both bonds coupon rate) than he should purchase corporate bond whereas in high tax bracket than he should go with municipal bond.

- His other holdings will not determine which bond will give greatest return.

- The business of his employer will also not help us to analyze which bond between corporate or municipal will give him higher return.

- How long he lived in new york is irrelevant information to find the greatest return among both bonds.