Essentials Of Investments
11th Edition
ISBN: 9781260013924
Author: Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Publisher: Mcgraw-hill Education,
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Textbook Question
Chapter 2, Problem 16PS
Find the equivalent taxable yield of the municipal bond in Problem 14 for tax brackets of: (LO 2-1)
a. Zero
b. 10%
c. 20%
d. 30%
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Find the equivalent taxable yield of a short-term municipal bond currently offering yields of 4% for tax brackets of (a) zero, (b) 10%, (c) 20%, and (d) 30%.
Suppose that short-term municipal bonds currently offer yields of 4%, while comparable taxable bonds pay 5%. Required: Which gives you the higher after-tax yield if your combined tax bracket is: Higher After-Tax Yield a. Zero Municipal bond b. 10% Taxable bond c. 20% Municipal bond d. 30% Neither
Chapter 2 Solutions
Essentials Of Investments
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- What is the taxable equivalent yield on a municipal bond with a yield to maturity of 4 percent for an investor in the 28 percent tax bracket?arrow_forwardA tax-free municipal bond provides a yield of 4.3%. What is the equivalent taxable bond given a 35% tax bracket? 4.3% 5.4% 6.6% 2.8%arrow_forward1. A bond issued by the Irbid Municipal priced to yield 7.80%. If you are in the 15% tax bracket this bond would provide you with an equivalent taxable yield of 8.41% 7.80% 9.17% 8.99%arrow_forward
- MULTIPLE CHOICE Calculate the after-tax cost of debt under each of the following cases: (a) the interest rate is 10 percent, and the tax rate is 40 percent; (b) the interest rate is 11 percent, and the tax rate is 50 percent? A. (a)10% and (b)4.5%B. (a)5% and (b)5.5%C. (a)12% and (b)6.5%D. (a)6% and (b)5.5%E. None of the abovearrow_forwardWhat is the tax exempt equivalent yleld on a 9% bond yleld given a marginal tax rate of 23%? Multiple Cholce -14.00% 6.93% 9.00% 14.00%arrow_forward11-1 After-Tax Cost of Debt Calculate the after-tax cost of debt under each of the following conditions: rd of 13%, tax rate of 0% rd of 13%, tax rate of 20% rd of 13%, tax rate of 35%arrow_forward
- Suppose you invest in a municipal bond that pays a yield of 4. If your marginal tax is 17%, what is the equvalent yield on the taxable bond? (write your answer in percentage and round it to 2 decimal places)arrow_forwardC) Suppose that the interest rate on a taxable corporate bond is 9% and that the marginal tax is 28%. Suppose a tax-free municipal bond with a rate of 6.75% was available. Which security would you choose?arrow_forwardThe current yield on a municipal bons is 6%. What would the equivalent taxable yield of this bond to a taxpayer in a 35% tax bracket? Enter your answer as a decimal not percentage and round your answer to 4 decimal placesarrow_forward
- You can invest in taxable bonds that are paying a yield of 9.7 percent or a municipal bond paying a yield of 7.95 percent. Assume your marginal tax rate is 21 percent. a. Calculate the after-tax rate of return on the taxable bond? (Round your answer to 2 decimal places. (e.g., 32.16))b. Which security bond should you buy?arrow_forwardWhat’s the taxable equivalent yield on a municipal bond with a yield to maturity of 4.1 percent for an investor in the 28 percent marginal tax bracket?arrow_forwardSuppose you invest in a municipal bond that pays a yield of 9%. If your marginal tax is 29%, what is the equivalent yield on the taxable bond? (write your answer in percentage and round it to 2 decimal places)arrow_forward
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