Homework Answers
Muni's taxable equivalent yield
= (Tax exempt yield) ÷ (1- tax rate)
= 2.5 ÷ 0.65
= 3.84%
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emnt A firm is considering a municipal security offering a tax-exempt yield of 2.5%. What is...
s Calculation (20%) Table 2.2 Tax-Exempt Yield Equivalent taxable yields corresponding to various tax-exempt yields 2%...
s Calculation (20%) Table 2.2 Tax-Exempt Yield Equivalent taxable yields corresponding to various tax-exempt yields 2% 3% 4% 5% 1% Marginal Tax Rate 125% 2.50% 3.75% 5.00% 6.25% 20% 30 1,43 2.86 4.29 5.71 7.14 40 1.67 3.33 5.00 6.67 8.33 50 2.00 4.00 6.00 8.00 10.00 Suppose your tax bracket is 40%, would you rather hold a 7% taxable bond or a % tax-free bond? What is the equivalent taxable yield of the 5%tax-free yield?
s Calculation (20%) Table...
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 ____%.
A tax-exempt municipal bond has a yield of 6.36%. What should be the yield (in %,...
A tax-exempt municipal bond has a yield of 6.36%. What should be the yield (in %, to the nearest 0.01%) on an otherwise similar corporate bond to make an investor with the 22% marginal tax rate indifferent between the two bonds? E.g., if your answer is 7.145%, record it as 7.15.
Problem 2-14 Find the equivalent taxable yield of a short-term municipal bond currently offering yields of...
Problem 2-14 Find the equivalent taxable yield of a short-term municipal bond currently offering yields of 6% for tax brackets of zero, 10%, 20%, and 30%. (Round your answers to 2 decimal places.) Equivalent Taxable Yield a. b. c. d. Zero 10% 20% 30% ances
A tax-exempt security's rate is determined by mathematically setting its after-tax rate equal with that of...
A tax-exempt security's rate is determined by mathematically setting its after-tax rate equal with that of a taxable security (TS). The tax paid on a taxable security is the marginal tax rate (MTR). Elki would like to invest $38,000 in tax-exempt securities. He now has the money invested in a certificate of deposit that pays 6.10% annually. What rate of interest would the tax-exempt security have to pay to result in a greater return on Elki's investment than the certificate...
A tax-exempt security's rate is determined by mathematically setting its after-tax rate equal with that of...
A tax-exempt security's rate is determined by mathematically setting its after-tax rate equal with that of a taxable security (TS). The tax paid on a taxable security is the marginal tax rate (MTR). Elki would like to invest $54,000 in tax-exempt securities. He now has the money invested in a certificate of deposit that pays 5.30% annually. What rate of interest would the tax-exempt security have to pay to result in a greater return on Elki's investment than the certificate...
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%
A tax-exempt municipal bond with a coupon rate of 8.00% has a market price of 98.76%...
A tax-exempt municipal bond with a coupon rate of 8.00% has a market price of 98.76% of par. The bond matures in 8.00 years and pays semi-annually. Assume an investor has a 18.00% marginal tax rate. The investor would prefer otherwise identical taxable bond if it's yield to maturity was more than _____%
A tax-exempt municipal bond with a coupon rate of 4.00% has a market price of 98.77%...
A tax-exempt municipal bond with a coupon rate of 4.00% has a market price of 98.77% of par. The bond matures in 17.00 years and pays semi-annually. Assume an investor has a 16.00% marginal tax rate. The investor would prefer otherwise identical taxable bond if it's yield to maturity was more than _____%
A corporate bond has a yield of 3.91%. What should be the yield on a tax-exempt...
A corporate bond has a yield of 3.91%. What should be the yield on a tax-exempt municipal bond (in %, to the nearest 0.01%) to make an investor with the 33% marginal tax rate indifferent between the two bonds? E.g., if your answer is 3.237%, record it as 3.24.
s Calculation (20%) Table 2.2 Tax-Exempt Yield Equivalent taxable yields corresponding to various tax-exempt yields 2% 3% 4% 5% 1% Marginal Tax Rate 125% 2.50% 3.75% 5.00% 6.25% 20% 30 1,43 2.86 4.29 5.71 7.14 40 1.67 3.33 5.00 6.67 8.33 50 2.00 4.00 6.00 8.00 10.00 Suppose your tax bracket is 40%, would you rather hold a 7% taxable bond or a % tax-free bond? What is the equivalent taxable yield of the 5%tax-free yield?
s Calculation (20%) Table...
Problem 2-14 Find the equivalent taxable yield of a short-term municipal bond currently offering yields of 6% for tax brackets of zero, 10%, 20%, and 30%. (Round your answers to 2 decimal places.) Equivalent Taxable Yield a. b. c. d. Zero 10% 20% 30% ances
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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