What is the taxable equivalent yield on a municipal bond with a yield to maturit

Question

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? 2.88 percent 3.87 percent 4.51 percent 5.56 percent A 5.125 percent TIPS has an original reference CPI of 191.8. If the current CPI is 18.3, what is the par value of the TIPS? $981.75 $1,018.60 $992.75 $1,042.95 Which of the following is a debt security whose payments originate from other loans, such as credit card debt, and home equity loans Asset-backed securities Credit quality securities Debentures Junk bonds

Explanation / Answer

1.

A. Asset - Backed Securities.

These are securities which are backed by assets such as loans, Credit card debt, Royalties etc.

2.

D. 5.56 Percent

Taxable Equivalent Yield = 4 / 72 x 100 = 5.56

3.

A. $981.75

Calculation:

Change in CPI: 191.8 - 188.3 = 3.5

In % 3.5 / 191.8 = 1.824818% Reduction

So, par value will be reduced by 1.824818% = 1,000 x 1.824818% = $18.25

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