Who would want a Municipal Bond? Why? Who would NOT? Why not?
Homework Answers
A person in a high marginal income tax bracket shall opt for municipal bonds as the income on municipal bonds are tax free. Such individual would not have to pay any tax from such income. If such an individual opts for any other bond he may have to pay a high amount of tax.
A person who is in a lower tax bracket shall not opt for a municipal bond if he receives interest rate on another bond which after adjusting for tax is higher than the municipal bond. In all likelihood this is more likely when the tax rate is low. As the tax rate increases, the likelihood that after tax return on such a bond shall be more than municipal bond decreases.
A tax-exempt municipal bond has a yield to maturity of 4.99%. An investor, who has a...
A tax-exempt municipal bond has a yield to maturity of 4.99%. An investor, who has a marginal tax rate of 30.00%, would prefer and an otherwise identical taxable corporate bond if it had a yield to maturity of more than ____%.
For whom would a municipal bond be a better investment? None of these, the net yield...
For whom would a municipal bond be a better investment? None of these, the net yield of a municipal bond are equal for all investors. a young investor with a low income any investor with a low marginal tax rate. an older investor with a high income
Why does the Federal Government exclude from gross income interest on municipal bond interest?
Why does the Federal Government exclude from gross income interest on municipal bond interest?
A municipal bond carries a coupon rate of 7.00% and is trading at par. What would...
A municipal bond carries a coupon rate of 7.00% and is trading at par. What would be the equivalent taxable yield of this bond to a taxpayer in a 35% tax bracket? (Round your answer to 2 decimal places.) Equivalent taxable yield %
A municipal bond carries a coupon rate of 7.00% and is trading at par. What would...
A municipal bond carries a coupon rate of 7.00% and is trading at par. What would be the equivalent taxable yield of this bond to a taxpayer in a 35% tax bracket? (Round your answer to 2 decimal places.) Equivalent taxable yield
An investor purchases one municipal bond and one corporate bond that pay rates of return of...
An investor purchases one municipal bond and one corporate bond that pay rates of return of 4% and 5.5%, respectively. If the investor is in the 20% tax bracket, his after-tax rates of return on the municipal and corporate bonds would be, respectively, _____.
3. Corporate bond yield - Treasury bond yield = C6 A. Municipal bond yield B. Hypothetical...
3. Corporate bond yield - Treasury bond yield = C6 A. Municipal bond yield B. Hypothetical yield curve C. Default risk premium D. Default risk premium + liquidity premium E. Municipal bond yield - default risk premium 4. Which of the following statements is true about municipal bonds? C7 A. Municipal bondholders are safer than corporate bonds B. Municipal bonds can be issued by federal, state and local governments C. Municipal bonds have a comparable coupon rate to corporate bond...
1)- A municipal bond selling at par currently yields 7.5%. A corporate bond selling at par...
1)- A municipal bond selling at par currently yields 7.5%. A corporate bond selling at par currently yields 10%. At what marginal tax rate would an investor be indifferent between this two bonds? 2)- A corporate bond selling at par currently yields 7.5%. Amy's marginal tax rate is 20%. How much should a municipal bond selling at par yields so that Amy is indifferent between this two bonds? 3)- A municipal bond selling at par currently yields 6.5%. Bob's marginal...
Question 5. Bond pricing (1 points) A municipal bond with a par value of $1,000 and...
Question 5. Bond pricing (1 points) A municipal bond with a par value of $1,000 and a maturity of 10 years has a coupon rate of 5% paid annually and the required rate of return for investors is only 4%. a) Calculate the bond value. b) Does the bond sell at par, premium, or discount? Explain why.
Municipal bonds are tax-exempt from the Federal income tax. Assume a new 10-year municipal bond has...
Municipal bonds are tax-exempt from the Federal income tax. Assume a new 10-year municipal bond has a 3%/year coupon rate. What would be the required coupon rate on a taxable bond for an investor to be indifferent in holding a taxable bond compared to the 3% tax-free bond? Assume the investor is in a 40% marginal income tax bracket. Both bonds have the same credit quality. 5.0% 1.8% 1.2% 7.5% 3.0%
3. Corporate bond yield - Treasury bond yield = C6 A. Municipal bond yield B. Hypothetical yield curve C. Default risk premium D. Default risk premium + liquidity premium E. Municipal bond yield - default risk premium 4. Which of the following statements is true about municipal bonds? C7 A. Municipal bondholders are safer than corporate bonds B. Municipal bonds can be issued by federal, state and local governments C. Municipal bonds have a comparable coupon rate to corporate bond...
Question 5. Bond pricing (1 points) A municipal bond with a par value of $1,000 and a maturity of 10 years has a coupon rate of 5% paid annually and the required rate of return for investors is only 4%. a) Calculate the bond value. b) Does the bond sell at par, premium, or discount? Explain why.
Municipal bonds are tax-exempt from the Federal income tax. Assume a new 10-year municipal bond has a 3%/year coupon rate. What would be the required coupon rate on a taxable bond for an investor to be indifferent in holding a taxable bond compared to the 3% tax-free bond? Assume the investor is in a 40% marginal income tax bracket. Both bonds have the same credit quality. 5.0% 1.8% 1.2% 7.5% 3.0%
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