Homework Answers
option B is correct. Interest Rate Risk is th risk that arises for bond owners from fluctuating interest rates. All other things being equal, the shorter the time to maturity, lower the interest rate risk.
In general, the higher the duration, the more a bond's price will drop as interest rates rise (and the greater the interest rate risk) and vice- versa. Long period of Bonds are more sensitive to change in interest rate risk as compared to short term Bonds. That is the reason why long period bonds are paid more than shorter bonds becuase they get a preimium for taking that risk.
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Which one of the following is true? Interest Rate Risk is the risk that arises for...
Which one of the following is true? When comparing a 20-year bond versus a Iyear bond,...
Which one of the following is true? When comparing a 20-year bond versus a Iyear bond, the 20-year bond has a much greater interest rate risk Treasury issues are exempt from federal income taxes but not state income taxes Interest Rate Rick is the risk that arises for bond owners from fluctuating interest rates All other things being equal the shorter the time to maturity, the lower the interest rate risk Interest Rate Risk is the risk that arises for...
45. Steven has $100,000 to purchase a bond. Two bonds of similar credit risk are available....
45. Steven has $100,000 to purchase a bond. Two bonds of similar credit risk are available. The first is taxable with an eight-percent yield; the second is tax-exempt with a five-percent yield. Steven is in the 39.6 percent federal income tax bracket and the 3.23 percent state income tax bracket. Which bond should Steven purchase? How much higher is his return in the first year for this bond versus the other? taxable : 100,000 * 8%= 8,000 income, * (39.6%...
Ms. Drake is deciding between investing $50,000 in two different municipal bonds, both of which have...
Ms. Drake is deciding between investing $50,000 in two different municipal bonds, both of which have the same risk. The first option is state of Colorado bonds paying interest of 3.35%. The second option is state of Texas bonds paying interest of 3.50%. All income from either bond investment is nontaxable at the federal level. Because Ms. Drake is a resident of Colorado, any income from the Colorado bond is nontaxable at the state level as well. However, any income...
Below is how far I have gotten: Benefit of federal tax rate: ? 2. Ms. Drake...
Below is how far I have gotten:
Benefit of federal tax rate: ?
2. Ms. Drake is deciding between investing $50,000 in two different municipal bonds, both of which have the same risk. The first option is state of Colorado bonds paying interest of 3.35%. The second option is state of Texas bonds paying interest of 3.50%. All income from either bond investment is nontaxable at the federal level. Because Ms. Drake is a resident of Colorado, any income from...
2. Ms. Drake is deciding between investing $50,000 in two different municipal bonds, both of which...
2. Ms. Drake is deciding between investing $50,000 in two different municipal bonds, both of which have the same risk. The first option is state of Colorado bonds paying interest of 3.35%. The second option is state of Texas bonds paying interest of 3.50%. All income from either bond investment is nontaxable at the federal level. Because Ms. Drake is a resident of Colorado, any income from the Colorado bond is nontaxable at the state level as well. However, any...
Which of the following is a reason municipal bonds offer lower rates of interest income for...
Which of the following is a reason municipal bonds offer lower rates of interest income for their investors? Select one: A. They are able to avoid interest rate risk. B. They are tax exempt - at least at the federal level. C. They are able to offer reduced credit risk as they are backed by the federal government. D. They are able to avoid reinvestment rate risk. A two-year Treasury security currently earns 5.25 percent. Over the next two years,...
B) You are required to produce a table showing bond values and interest rate risk over the durati...
b) You are required to produce a table showing bond values and interest rate risk over the duration of a bond and a diagram demonstrating the link between interest rate risk and time to maturity. The bond has a face value of $1,000, pays a coupon rate of 996 and is issued with 10 years to maturity. All calculations should be executed in excel. Your table should show the following: The value of the bond, year by year, from date...
roduce a table showing bond values and interest rate risk over the duration of a bond...
roduce a table showing bond values and interest rate risk over the duration of a bond and a diagram demonstrating the link between interest rate risk and time to maturity. The bond has a face value of $1,000, pays a coupon rate of 9% and is issued with 10 years to maturity. All calculations should be executed in excel. Your table should show the following: The value of the bond, year by year, from date of issue until its...
5. Federal Bonds offer more tax advantages than municipal bonds because interest income eamed on Federal...
5. Federal Bonds offer more tax advantages than municipal bonds because interest income eamed on Federal Bonds are exempt from state and local taxes a True b. False A Chattel Mortgage Bond is secured by personal property a True b. False
Problem 16-44 (LO. 6) HippCo Federal taxable income for the year is $1,000,000. Its operations are...
Problem 16-44 (LO. 6) HippCo Federal taxable income for the year is $1,000,000. Its operations are confined to Oregon and Montana. HippCo generates only business and interest income for the year. Federal cost recovery deductions totaled $200,000. Montana used this amount, but Oregon allowed only $120,000. Interest income of $25,000 from Oregon bonds was excluded from Federal taxable income. Oregon taxes all municipal bond income, while Montana taxes all such interest except that from its own bonds. Interest income from...
Which one of the following is true? When comparing a 20-year bond versus a Iyear bond, the 20-year bond has a much greater interest rate risk Treasury issues are exempt from federal income taxes but not state income taxes Interest Rate Rick is the risk that arises for bond owners from fluctuating interest rates All other things being equal the shorter the time to maturity, the lower the interest rate risk Interest Rate Risk is the risk that arises for...
45. Steven has $100,000 to purchase a bond. Two bonds of similar credit risk are available. The first is taxable with an eight-percent yield; the second is tax-exempt with a five-percent yield. Steven is in the 39.6 percent federal income tax bracket and the 3.23 percent state income tax bracket. Which bond should Steven purchase? How much higher is his return in the first year for this bond versus the other? taxable : 100,000 * 8%= 8,000 income, * (39.6%...
Below is how far I have gotten:
Benefit of federal tax rate: ?
2. Ms. Drake is deciding between investing $50,000 in two different municipal bonds, both of which have the same risk. The first option is state of Colorado bonds paying interest of 3.35%. The second option is state of Texas bonds paying interest of 3.50%. All income from either bond investment is nontaxable at the federal level. Because Ms. Drake is a resident of Colorado, any income from...
2. Ms. Drake is deciding between investing $50,000 in two different municipal bonds, both of which have the same risk. The first option is state of Colorado bonds paying interest of 3.35%. The second option is state of Texas bonds paying interest of 3.50%. All income from either bond investment is nontaxable at the federal level. Because Ms. Drake is a resident of Colorado, any income from the Colorado bond is nontaxable at the state level as well. However, any...
Which of the following is a reason municipal bonds offer lower rates of interest income for their investors? Select one: A. They are able to avoid interest rate risk. B. They are tax exempt - at least at the federal level. C. They are able to offer reduced credit risk as they are backed by the federal government. D. They are able to avoid reinvestment rate risk. A two-year Treasury security currently earns 5.25 percent. Over the next two years,...
b) You are required to produce a table showing bond values and interest rate risk over the duration of a bond and a diagram demonstrating the link between interest rate risk and time to maturity. The bond has a face value of $1,000, pays a coupon rate of 996 and is issued with 10 years to maturity. All calculations should be executed in excel. Your table should show the following: The value of the bond, year by year, from date...
5. Federal Bonds offer more tax advantages than municipal bonds because interest income eamed on Federal Bonds are exempt from state and local taxes a True b. False A Chattel Mortgage Bond is secured by personal property a True b. False
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