Question

A municipal bond has a coupon rate of 5.08 percent and a YTM of 5.39 percent. If an investor has a marginal tax rate of 30 percent, what is the equivalent pretax yield on a taxable bond? 

 Multiple Choice

 5.63%

 3.77%

 3.56%

Whatever, Inc., has a bond outstanding with a coupon rate of 5.78 percent and semiannual payments. The yield to maturity is 6.5 percent and the bond matures in 22 years. What is the market price if the bond has a par value of $1,000? 

 Multiple Choice

 $917.76

 $916.35

 $916.95

Answer 1

2) Pretax yield = 5.39% x (1 - 30%) = 3.77%

3) Bond Price can be calculated using PV function on a calculator

N = 22 x 2 = 44, PMT = 5.78% x 1000 / 2, I/Y = 6.5%/2, FV = 1000

=> Compute PV = $916.35