What is after-tax holding-period return on bond

Assignment Help Financial Management

Reference no: EM131903289

A newly issued bond pays its coupons once a year. Its coupon rate is 4.8%, its maturity is 20 years, and its yield to maturity is 7.8%.

a. Find the holding-period return for a one-year investment period if the bond is selling at a yield to maturity of 6.8% by the end of the year. (Do not round intermediate calculations. Round your answer to 2 decimal places.)

Holding-period return %_____________

b. If you sell the bond after one year when its yield is 6.8%, what taxes will you owe if 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 (OID) tax treatment. (Do not round intermediate calculations. Round your answers to 2 decimal places.)

Tax on interest income $

Tax on capital gain $

Total taxes $

c. What is the after-tax holding-period return on the bond? (Do not round intermediate calculations. Round your answer to 2 decimal places.)

After-tax holding-period return %______________

d. Find the realized compound yield before taxes for a two-year holding period, assuming that (i) you sell the bond after two years, (ii) the bond yield is 6.8% at the end of the second year, and (iii) the coupon can be reinvested for one year at a 2.8% interest rate. (Do not round intermediate calculations. Round your answer to 2 decimal places.)

Realized compound yield before taxes %_______________

e. Use the tax rates in part (b) to compute the after-tax two-year realized compound yield. Remember to take account of OID tax rules. (Do not round intermediate calculations. Round your answer to 2 decimal places.)

After-tax two-year realized compound yield %_____________

Reference no: EM131903289

Questions Cloud

Calculate your total percentage return on your investment : You purchased 300 shares of MECCS Inc. stock at $42.80 per share. Calculate your total percentage return on your investment.

How can atomic broadcast be used to manage group membership : How can atomic broadcast be used to manage group membership? When a computation runs for a long time, it is sometimes wise to make checkpoints periodically.

Develop a term project paper to incorporate rfid technology : Develop a Term Project Paper that is a detailed design of an implementation plan to incorporate RFID technology as part of a real-world business model.

Discuss reading and writing files from a file server : For each of the following applications, do you think once semantics or at most once semantics is best? Discuss Reading and writing files from a file server.

What is after-tax holding-period return on bond : What is the after-tax holding-period return on the bond? Use the tax rates in part (b) to compute the after-tax two-year realized compound yield.

How site is beneficial to high school athletic department : Describe how the site is beneficial to high school athletic departments, athletic directors, athletes, etc.

What about writing the first block : Reading the first block of a file from a remote file server is an idempotent operation. What about writing the first block?

What steps would an rpc consist of in the given case : The usual sequence of steps in an RPC involves trapping to the kernel to have the message sent from the client. What steps would an RPC consist of in that case?

Reviewing the stanford piece : After reviewing the Stanford piece, how do online friendships stand up, ethically speaking?

User Account

All Pages