Question

Question 3

Assume you are in the 20 percent tax bracket and purchase a 5.0 percent municipal bond.

Calculate the taxable equivalent yield for this investment.

Convert your answer to a percent, then round to 2 decimal places (i.e. 1.25 2.44, 0.09, 12.44).

Do not include the "%" sign in your response.

Question 4

Assume that three years ago you purchased a corporate bond that pays 6.0 percent. The purchase price was $1110.

What is the annual dollar amount of interest that you receive from your bond investment?

(Round your answer to the nearest whole dollar amount. Do not include the comma, period, and "$" sign in your response.)

Question 5

Determine the current yield on a corporate bond investment that has a face value of $1180, pays 6 percent, and has a current price of $1220.

Convert your answer to a percent, then round to 1 decimal place (i.e. 1.3 2.4). Do not include the "%" sign in your response.

Answer 1

Question 3

Municipal bonds are tax exempt so a non municipal bond should have an after tax yield of 5% to match the yield of the municipal bond.

Bond Equivalent Yield x (1 – tax rate) = Yield Municipal

Bond Equivalent Yield x (1 – 0.20 = 5

Bond Equivalent Yield = 0.80

Bond Equivalent Yield = 6.25

Question 4

If the price was 1110 the we can assume that the par value is 1000 unless otherwise specified and coupon is always calculated on the par value.

Annual Interest = coupon rate x par value

Annual Interest = 0.06 x 1000 = $60

So the annual interest is 60

Question 5

Annual coupon Current Yield = 1 - x 100 Price

Current Yield = 0.06 x 1180 1220 - X 100

Current Yield = 5.80%

So the current yield is 5.80