Determine what is taxable bond equivalent yield

Assignment Help Finance Basics

Reference no: EM131926319

Question: Suppose you are in the 30% federal income tax bracket and 7% state income tax bracket. You purchase a 10-year maturity bond issued by the State of Maryland and the bond coupon income is exempt from state and federal income taxes. Answer the following questions.

a. If the municipal bond yield is 4%, what is taxable bond equivalent yield? If a 10-year corporate bond with similar credit quality provides 8% yield, which bond do you prefer between the municipal bond and corporate bond? Why?

b. Suppose the municipal bond is not state income tax exempt (only federal income tax exempt). Which bond do you prefer between the municipal bond and corporate bond?

Reference no: EM131926319

Questions Cloud

What should be current price of put option of given styles : A stock's price is $100. Over each of the next two three month periods it is expected to go up or down by 15% or down by 10%. The risk free rate is 4% p.a.

What is a balanced transportation model : What is a balanced transportation model? Describe the approach you would use to solve an unbalanced model.

Simplification of calculation : Given Ka of acetic acid is 10-4.7 and Kw is 10-14. 5% error is allowable if assumptions are made for simplification of calculation.

What is the optimal capital structure under the mm model : What is the optimal capital structure under the MM model with corporate taxes?

Determine what is taxable bond equivalent yield : If the municipal bond yield is 4%, what is taxable bond equivalent yield? If a 10-year corporate bond with similar credit quality provides 8% yield.

What was annual increase in selling price : Assume that in January 2013, the average house price in a particular area was $282,400. What was the annual increase in selling price?

Why use this two-stage process for predicting sales : Why use this two-stage process for predicting sales-why not simply develop a model for predicting profit for the 1000 new leads?

How do the values of the assets and liabilities change : Consider the following two banks: (LG 3-4) Bank 1 has assets composed solely of a 10-year, 12 percent coupon, $1 million loan with a 12 percent yield.

Calculate the annual cash flows : Calculate the annual cash flows (annuity payments) from a fixed-payment annuity if the present value of the 25-year annuity is $1.1 million

User Account

All Pages