Suppose one year ago the price index was 120 and Maria purchased $20,000 worth of bonds. One year later the price index is 126. Maria redeems her bonds for $22,700 and is in a 40 percent tax bracket. What is Maria’s real after-tax rate of interest to the nearest tenth of a percent?
Question 10 options:
|
|||
|
|||
|
|||
|
Hide hint for Question 10 |
|
Hint: Use the equation rat = i(1-T) – π. The right answer is 3.1% but I would like to know the steps to get this answer |
Price index a year ago = 120
Price index a year later = 126
Rate of inflation (ℼ) = (126-120) / 120 x 100 = 5% (0.05)
Maria redeemed her $20,000 worth bonds for $22,700 a year later.
Nominal interest rate on her bonds = (22,700-20,000) / 20,000 x 100 = 13.5% (0.135)
Real after-tax rate of interest: r(at) = i(1-T) - ℼ
Real after-tax rate of interest = 0.135(1-0.4) – 0.05
R(at) = (0.135*0.6) – 0.05
R(at) = 0.081 – 0.05 = 0.031
Real after-tax rate of return = 3.1% (0.031 x 100)
d) 3.1 percent.
*****
Suppose one year ago the price index was 120 and Maria purchased $20,000 worth of bonds....
Perry's Pizzeria issued 20-year annual coupon bonds one year ago at a coupon rate of 5.1 percent. If the YTM on these bonds is 8.99 percent, what is the current bond price?
One year ago a company sold 10-year, $1,000 par value, annual coupon bonds at a price of $950.00 per bond. At that time the market rate was 8 percent a year. Today the market rate is 8.5 percent a year. At what price are the bonds currently selling?
One year ago Sam purchased bonds for $100,000. He just sold them for $120,000. During the year the price level rose by 5%. If the tax rate on capital gains is 20%, how much did Sam gain in real terms?
Great Wall Pizzeria issued 9-year bonds one year ago at a coupon rate of 6.7 percent. If the YTM on these bonds is 8.9 percent, what is the current bond price? LKD Co. has 12 percent coupon bonds with a YTM of 9.9 percent. The current yield on these bonds is 10.4 percent. How many years do these bonds have left until they mature? orrect Question 10 0/1 pts A Treasury STRIPS matures in 7 years and has a yield...
its mcq and short question answer. 19) If the Consumer Price Index chenges from 120 in year ene to 150 in yeae twe, the rae of inflation in the intervening yenr is A) 10 percent B) 12.5 percet 9 20 percent D) 25 percent E) 30 percent HORT ANSWER. Write the word or phrase that best completes each statement or answers the question. 20 20) The Consumer Price Index tends to the true problem of inflation 28) Suppone that the...
MULTIPLE CHOICE. Choose the one alternative that best completes the statement or answers the question. 1) The LM curve represents A) the single level of output where the goods market is in equilibrium. B) the combinations of output and the interest rate where the goods market is in equilibrium. C) the single level of output where financial markets are in equilibrium. D) the combinations of output and the interest rate where the money market is in equilibrium. E) none of...
MULTIPLE CHOICE. Choose the one alternative that best completes the statement or answers the question. 1) The LM curve represents A) the single level of output where the goods market is in equilibrium. B) the combinations of output and the interest rate where the goods market is in equilibrium. C) the single level of output where financial markets are in equilibrium. D) the combinations of output and the interest rate where the money market is in equilibrium. E) none of the...
please I need this, step by step with formulas, avoid using excel. CASE 33 Security Software, Inc. communication in a highly secure and efficient process. The Market Security Software, Inc. (SSI) was a major provider of application software. The firm was proud to be the number two company in the enterprise firewall market. Firewalls ensure network Security for businesses by determining whether to approve or deny access to corporate networks and applications. They have security software that inspects com- munication...
CASE 1-5 Financial Statement Ratio Computation Refer to Campbell Soup Company's financial Campbell Soup statements in Appendix A. Required: Compute the following ratios for Year 11. Liquidity ratios: Asset utilization ratios:* a. Current ratio n. Cash turnover b. Acid-test ratio 0. Accounts receivable turnover c. Days to sell inventory p. Inventory turnover d. Collection period 4. Working capital turnover Capital structure and solvency ratios: 1. Fixed assets turnover e. Total debt to total equity s. Total assets turnover f. Long-term...