13.An investor wishes to invest in a municipal bond that yields 6%. If the inves

Question

13.An investor wishes to invest in a municipal bond that yields 6%. If the investor is within a 28% tax bracket, what is the equivalent rate on a corporate bond that would make him indifferent between these bonds?A) 1.68% B) 4.32% C) 7.68% D) 7.42% E) 8.33%

14.A holder of convertible bonds with a $1,000 price can convert the bond to 20 shares of common stock. The stock is currently priced at $44 per share. By what percent does the stock price have to rise to make conversion potentially attractive?A) 10.00% B) 14.73% C) 11.11% D) 13.64% E) 10.69%

15.A bond rating is based on a bond’s A) interest rate risk B) credit risk C) liquidity risk D) foreign exchange riskE) none of the above

16.Which of the following bonds are secured bonds?A) Mortgage Bonds B) Debentures C) General Obligation Bonds D) A and C E) None of the above

Explanation / Answer

13)

Equivalent rate on a corporate bond:

= Municipal bond rate/(1-Tax rate)

= 6%/(1-28%)

= 8.33%

Hence, correct option is (E) 8.33%

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