Question

1. A company wants to compare the yield from a $100,000 state bond with an annual tax-exempt yield of 5.5 percent to that of a 182-day $100,000 T-Bill with and 7.5 percent discount rate. If the investor has a marginal tax rate of 28 percent, what are the bond equivalent yield (BEY) and the tax equivalent yield (TEY) for the appropriate instruments?

a. 9.82 percent TEY (state bond); 7.90 percent BEY (T-bill)

b. 9.82 percent TEY (state bond); 7.60 percent BEY (T-bill)

c. 7.64 percent TEY (state bond); 7.90 percent BEY (T-bill)

d. 7.64 percent TEY (state bond); 7.60 percent BEY (T-bill)

2. What is the discount rate on a 90-day $400,000 T-bill selling at $395,237?

a. 4.83 percent.    B. 4.95 percent   C. 4.76 percent D. 1.19 percent

Answer 1