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After tax yield of first bond=10.03%*(1-35%)=6.52%
After tax yield of second bond=6.60%
Invest in second bond which is tax exempt
P10.5 (similar to) Question Help An investor lives in a state with a 6% tax rate....
Janice Wilcox is a wealthy investor who's looking for a tax shelter. Janice is in the maximum (37%) federal tax bracket and lives in a state with a very high state income tax. (She pays the maximum of 12.3% in state income tax.) Janice is currently looking at two municipal bonds, both of which are selling at par. One is a AA-rated in-state bond that carries a coupon of 7.934%. The other is a AA-rated, out- of-state bond that carries...
45. Steven has $100,000 to purchase a bond. Two bonds of similar credit risk are available. The first is taxable with an eight-percent yield; the second is tax-exempt with a five-percent yield. Steven is in the 39.6 percent federal income tax bracket and the 3.23 percent state income tax bracket. Which bond should Steven purchase? How much higher is his return in the first year for this bond versus the other? taxable : 100,000 * 8%= 8,000 income, * (39.6%...
Beth, who lives in NY City, is in the 24% federal tax bracket and 6% state income tax bracket. Which of the following bonds that she is considering purchasing has the highest after-tax yield? 1) Treasury bond paying 5.4% 2) Corporate bond paying 5.5% 3) Florida Municipal bond paying 4.2% A. 1 only. B. 2 only. C. 3 only. D. 1 and 2 are the same and the highest.
P10.7 (similar to) Quest Sara Nixon is looking for a fixed-income investment. She is considering two bond issues: a. A Treasury with a yield of 11.03% b. An in-state municipal bond with a yield of 8.97 % Sara is in the 33% federal tax bracket and the 8 % state tax bracket. Which bond would provide Sara with a higher tax-adjusted yield? The taxable equivalent yield on the Treasury bond is %. (Round to two decimal places.) Enter your answer...
Municipal bonds are tax-exempt from the Federal income tax. Assume a new 10-year municipal bond has a 3%/year coupon rate. What would be the required coupon rate on a taxable bond for an investor to be indifferent in holding a taxable bond compared to the 3% tax-free bond? Assume the investor is in a 40% marginal income tax bracket. Both bonds have the same credit quality. 5.0% 1.8% 1.2% 7.5% 3.0%
Question 1 (10 points) Dena is in the 10% federal income tax bracket and wants to invest $8,000 in interest-carning assets. Cullen is in the 35% bracket and wants to invest $15,000. The current rate on a typical high-quality tax-exempt municipal bond is 5% and on a similar quality corporate bond is 6.5%. You are the financial adviser to both. Which investment would you recommend to each individual?
Problem P5-9 (similar to) Based on the after-tax returms, at what federal tax rate (as shown in Chapter 4) is an investor better off choosing a tax-exempt 5.06 percent municipal bond over a taxable 725 percent corporate bond? The after-tax returm on the corporate bond when the tax rate is 10% is sN(Round to two decimal places)
Calculate the after-tax return of a 8.15 percent, 20-year, A-rated corporate bond for an investor in the 10 percent marginal tax bracket. Compare this yield to a 7.16 percent, 20-year, A-rated, tax-exempt municipal bond and explain which alternative is better. Repeat the calculations and comparison for an investor in the 33 percent marginal tax bracket. The after-tax return of a 8.15 percent, 20-year, A-rated corporate bond for an investor in the 10 percent marginal tax bracket is 7.34 %. (Round...
Jennifer is in the 25% federal income tax bracket and the 3% state income tax bracket. If Jennifer purchases a municipal bond yielding 4.25%, what is her after-tax equivalent yield if the bond income is exempt from both federal and state taxes? 5.84% 5% 7.55% 8. A bond has a YTM of 6.5%, a modified duration of 16.9 years, a duration of 18 years and a 30 year maturity. By what percentage will the bond's price change if market interest...
An investor recently purchased a corporate bond which yields 11.5%. The investor is in the 32% combined federal and state tax bracket. What is the bond's after-tax yield? Round your answer to two decimal places.