1) A taxable corporate issue yields 6.3 percent. For an investor in a 35 percent
ID: 2752592 • Letter: 1
Question
1)
A taxable corporate issue yields 6.3 percent. For an investor in a 35 percent tax bracket, what is the equivalent aftertax yield? (Round your answer to 2 decimal places. Omit the "%" sign in your response.)
2)
A municipal bond has 9 years until maturity and sells for $5,451.98. The coupon rate on the bond is 5.46 percent and the bond is callable in 5 years. What is the yield to call if the call price is 110 percent of par? (Round your answer to 2 decimal places. Omit the "%" sign in your response.)
Aftertax yield %Explanation / Answer
1)
After tax yield:
= Taxable yield×(1-Tax rate)
= 6.3%×(1-35%)
= 4.10%
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