Corporate Finance: A Focused Approach (mindtap Course List)
7th Edition
ISBN: 9781337909747
Author: Michael C. Ehrhardt, Eugene F. Brigham
Publisher: South-Western College Pub
expand_more
expand_more
format_list_bulleted
Videos
Question
Chapter 2, Problem 2P
Summary Introduction
To determine: Personal tax rate.
Expert Solution & Answer
Want to see the full answer?
Check out a sample textbook solution
Students have asked these similar questions
If the municipal bond rate is 6% and the corporate bond rate is 8%, what is the marginal tax rate, assuming investors are indifferent between the two bonds?
Suppose an investor is considering a corporate bond with a 7.17% before-tax yield and a municipal bond with a 5.93% before-tax yield. At what marginal tax rate would the investor be indifferent between investing in the corporate and investing in the muni? A) 15.4% B) 23.7% C) 39.5% D) 17.3% E) 12.4%Please provide justification
An investor purchases one municipal and one corporate bond that pay rates of return of 7.2% and 9.1%, respectively. If the investor is in the 15% marginal tax bracket, his or her
and _, respectively.
after-tax rates of return on the municipal and corporate bonds would be
7.2%;7.735%
8.471%:9.1%
O 7.2%;9.1%
6.12%;7.735%
Chapter 2 Solutions
Corporate Finance: A Focused Approach (mindtap Course List)
Ch. 2 - Prob. 1QCh. 2 - Prob. 2QCh. 2 - Prob. 3QCh. 2 - Prob. 4QCh. 2 - Prob. 5QCh. 2 - Prob. 6QCh. 2 - Prob. 7QCh. 2 - Prob. 8QCh. 2 - Prob. 1PCh. 2 - Prob. 2P
Ch. 2 - Hollys Art Galleries recently reported 7.9 million...Ch. 2 - Prob. 4PCh. 2 - Prob. 5PCh. 2 - Prob. 6PCh. 2 - Zucker Inc. recently reported 4 million in...Ch. 2 - Prob. 8PCh. 2 - Prob. 9PCh. 2 - Prob. 10PCh. 2 - Prob. 11PCh. 2 - Prob. 12PCh. 2 - Prob. 13PCh. 2 - Prob. 14PCh. 2 - Prob. 15PCh. 2 - Prob. 16PCh. 2 - Prob. 17PCh. 2 - Rhodes Corporations financial statements are shown...Ch. 2 - The Bookbinder Company had 500,000 cumulative...Ch. 2 - Jenny Cochran, a graduate of the University of...Ch. 2 - Prob. 2MCCh. 2 - Prob. 3MCCh. 2 - Prob. 4MCCh. 2 - Prob. 5MCCh. 2 - Prob. 6MCCh. 2 - Prob. 7MCCh. 2 - Prob. 8MCCh. 2 - Prob. 9MCCh. 2 - Prob. 10MCCh. 2 - Prob. 12MC
Knowledge Booster
Learn more about
Need a deep-dive on the concept behind this application? Look no further. Learn more about this topic, finance and related others by exploring similar questions and additional content below.Similar questions
- 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)arrow_forward7) Suppose an investor is considering a corporate bond with a 7.17% before-tax yield and a municipal bond with a 5.93% before-tax yield. At what marginal tax rate would the investor be indifferent between investing in the corporate and investing in the muni?arrow_forwardCorporate bonds issued by Johnson Corporation yield 8% interest at this time. Equal risk municipal bonds yield 6%. At what tax rate would an investor be indifferent to buying one or the other?arrow_forward
- C) 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_forwardSuppose 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?arrow_forwardA corporate bond currently yields 8.70%. Municipal bonds with the same risk, maturity, and liquidity currently yield 5.50%. At what tax rate would investors be indifferent between the two bonds? (Round your final answer to two decimal places.) O 30.90% 33.10% 36.78% O 41.56% O 41.93%arrow_forward
- A municipal bond has a yield to maturity of 3.8 percent. What corporate bond yield would make an investor in the 29 percent tax bracket indifferent between two bonds, all else the same?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_forwardMunicipal bonds are yielding 4.4 percent if they are insured and 4.7 percent if they are uninsured. Your marginal tax rate is 28 percent and the inflation rate is 1.645%. Your equivalent taxable yield on the insured bonds is _____ percent and on the uninsured bonds is _____ percent. How would your answers change if your marginal tax rate falls to 13.5% and the inflation rate increases to 2.0639%? What would happen to the YTM of the uninsured bond if negative news was announced resulting in a decline in its credit rating? What would happen to the YTM of the insured bond if it suddenly lost its insurance?arrow_forward
- Calculate the after-tax return of a(n) 5.625.62 percent, 20-year, A-rated corporate bond for an investor in the 1515 percent marginal tax bracket. Compare this yield to a(n) 3.683.68 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 3535 percent marginal tax bracket.arrow_forwardb) You can invest in taxable bonds that are paying a yield of 9.50% or a municipal bond paying a yield of 7.75%. If your marginal tax rate is 21%, which security bond should you buy? Answer:arrow_forward1. You are in the 30% tax bracket (federal & state taxes combined). A corporate bond is yielding 9%. Assuming that all non-tax features (e.g. risk) are identical, what yield would a municipal bond ("Muni") have to offer in order for you to prefer it over the corporate?arrow_forward
arrow_back_ios
SEE MORE QUESTIONS
arrow_forward_ios
Recommended textbooks for you
Intermediate Financial Management (MindTap Course...FinanceISBN:9781337395083Author:Eugene F. Brigham, Phillip R. DavesPublisher:Cengage Learning
Intermediate Financial Management (MindTap Course...
Finance
ISBN:9781337395083
Author:Eugene F. Brigham, Phillip R. Daves
Publisher:Cengage Learning
Journalizing Bonds Payable/Amortization of a Premium; Author: TLC Tutoring;https://www.youtube.com/watch?v=5gEpAFFnIE8;License: Standard YouTube License, CC-BY
Investing Basics: Bonds; Author: TD Ameritrade;https://www.youtube.com/watch?v=IuyejHOGCro;License: Standard YouTube License, CC-BY