An investor is in the 24% tax bracket and lives in a state with no income tax. He is trying to decide which of two bonds to purchase. One is a(n) 7.33% corporate bond that is selling at par. The othera coupon that is also seling at par. all otherthe investor select? Why?these two bonds areyour answerif thiswere an in-state municipal bond and the investor lived in a place with high state income taxes? Explain.If all other features of these two bonds are comparable, which should the investor select? Why? Would your answer change if this were an in-state municipal bond and the investor lived in a placewith high state income taxes? Explain. Which is the best selection? (Select the best choice below)OA. The investor should select the corporate bond. Since the fully taxable equivalent yield of 5.21% is less than the 7.33% return on the corporate bond, the corporate issue offers a higher returnand is the better buy. The decision very likely would not change if this were an "in-state" municipal bond and the investor lived in a state with high income taxes. An "in-state" municipal bondwould not shield the investor from federal taxes or from high state income taxes.OB. The investor should select the corporate bond. Since the fully taxable equivalent yield of 6.86% is less than the 7.33% return on the corporate bond, the corporate issue offers a higher returnand is the better buy. The decision very likely would change if this were an "in-state municipal bond and the investor lived in a state with high income taxes. An "in-state municipal bondwould not only shield the investor from federal taxes but also from high state income taxes.OC. The investor should select the municipal bond. Since the fully taxable equivalent yield of 5.21% is less than the 7.33% return on the corporate bond, the municipal issue is the better buyThe decision very likely would change if this were an "in-state municipal bond and the investor lived in a state with high income taxes. An "in-state municipal bond would not only shield theinvestor from federal taxes but also from high state income taxes.ⒸD. The investor should select the municipal bond. Since the fully taxable equivalent yield of 6.86% is less than the 7.33% return on the corporate bond, the municipal issue is the better buyThe decision very likely would change if this were an "in-state municipal bond and the investor lived in a state with high income taxes. An "in-state municipal bond would not only shield theinvestor from federal taxes but also from high state income taxes.

The correct answer is A. The investor should select the corporate bond..Gains on corporate bonds are…

a municipal bond with a 5.21% coupon that is also selling at par. If all other features of these two bonds are comparable, which should the investor select? Why? Would your answer change if this vere an in-state municipal bond and the investor lived in a place with high state income taxes? Explain. fall other features of these two bonds are comparable, which should the investor select? Why? Would your answer change if this were an in-state municipal bond and the investor lived in a place with high state income taxes? Explain. Which is the best selection? (Select the best choice below) A The investor should select the corporate bond Since the fully taxable equivalent yield of 5 s than the 7.33% return on the corporate bond, the corporate issue offers a higher return

a municipal bond with a 5.21% coupon that is also selling at par. If all other features of these two bonds are comparable, which should the investor select? Why? Would your answer change if this vere an in-state municipal bond and the investor lived in a place with high state income taxes? Explain. fall other features of these two bonds are comparable, which should the investor select? Why? Would your answer change if this were an in-state municipal bond and the investor lived in a place with high state income taxes? Explain. Which is the best selection? (Select the best choice below) A The investor should select the corporate bond Since the fully taxable equivalent yield of 5 s than the 7.33% return on the corporate bond, the corporate issue offers a higher return

CONCEPTS IN FED.TAX.,2020-W/ACCESS

20th Edition

ISBN:9780357110362

Author:Murphy

Publisher:Murphy

Chapter15: Choice Of Business Entity—other Considerations

Section: Chapter Questions

Problem 76P

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An investor is comparing the following two bonds: a bond from ABC Corp which pays an interest rate of 9 percent per year and a municipal bond which pays an interest rate of 7.9 percent per year. The investor is in the 22 percent tax bracket. Which bond will give the investor a higher after-tax interest rate and for which reason? a. The ABC bond because it pays a 9 percent interest rate, while the municipal bond only pays 7.9 percent. b. None of these is correct. c. The ABC bond because it pays an equivalent after-tax rate of 11.5 percent, while the municipal bond pays out an equivalent after-tax rate of 10.1 percent. d. The municipal bond because it pays an equivalent after-tax rate of 7.9 percent, while the ABC bond pays out an after-tax 7.02 percent interest rate. e. The municipal bond because it pays an equivalent after-tax rate of 7.9 percent, while the ABC bond pays out an equivalent after-tax rate of 2.0 percent.
Consider an investor who is in a 30% combined federal plus state tax bracket. If a corporate bond offers 5% yield, what yield must municipals offer for the investor so that she prefers the municipal bond to the corporate bond? Assume that the investor resides in the same municipality as the issuer. Answer in percentage. Municipal bonds must offer a yield of at least _______________ Group of answer choices 1.50% 2.50% 3.50% 5.00% 7.14%
Suppose your marginal federal income tax rate is 25 percent. 1. What is your after-tax return from holding a one-year corporate bond with a yield of 5.25 percent? (1 pt) 2. What is your after-tax return from a holding a one-year municipal bond with a yield of 4 percent? (1 pt) 3. How would you decide which bond to hold? (Assume that Both bonds carry the same risk.) (1 pt)
Jake Baldwin is looking for a fixed-income investment. He is considering two bond issues: a. A Treasury with a yield of 5.99% b. An in-state municipal bond with a yield of 4.46% Jake is in the 32% federal tax bracket and the 6% state tax bracket. Which bond would provide him with a higher tax-adjusted yield? The taxable equivalent yield on the Treasury bond is. (Round to two decimal places.) (...)
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A client in the 33 percent marginal tax bracket is compar- ing a municipal bond that offers a 4.50 percent yield to maturity and a similar risk corporate bond that offers a 6.45 percent yield. Which bond will give the client more profit after taxes? (LG 6-2)
Suppose the interest rate on a taxable corporate bond is 4 percent while a municipal, tax exempt bond has an interest rate of 3 percent, and they are similar in every other way. Assuming the income tax rate is 30 percent, calculate the after tax interest rate on the corporate bond. Is it higher or lower than the after tax return on the municipal bond?
You live in a world with a flat 21% taxes on all income except for the interest on municipal bonds. You are considering the purchase of a taxable corporate bond. You have identified a municipal bond with similar time-to-maturity, liquidity and default concerns, which bears a yield of 3.38%. Based on these figures, estimate what yield the taxable corporate bond should bear. 5.23% 4.28% 4.83% 2.67%
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