Find the realized compound yield before taxes

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A newly issued bond pays its coupons once annually. Its coupon rate is 9.2%, its maturity is 20 years, and its yield to maturity is 11%.

a. Find the realized compound yield before taxes for a 2-year holding period, assuming that (i) you sell the bond after two years, (ii) the bond yield is 10% at the end of the second year, and (iii) the coupon can be reinvested for one year at a 3% interest rate. (Do not round intermediate calculations. Round your answer to 2 decimal places.)

Part A is 14.40%. This is correct.

b. If you sell the bond after one year, the tax rate on interest income is 40% and the tax rate on capital gains income is 30%. The bond is subject to original-issue discount tax treatment. Compute the after-tax 2-year realized compound yield. Remember to take account of OID tax rules. (Do not round intermediate calculations. Round your answer to 2 decimal places.).

What is Part B is ? (The answer is NOT 8.06%). I can't figure out the solution to this part ONLY!

Reference no: EM132691180

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