What is the after-tax holding-period return on the bond

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Reference no: EM133331599

Question 1: An investor just purchased a semi-annual coupon bond with a coupon rate of 5% and $1,000 face value. The bond has a maturity is 20 years, and its yield to maturity is 8 percent.

a) Find the holding-period return for a one-year investment period if the bond is selling at a yield of 6 percent by the end of the year.

b) If the investor sells the bond after one year, what taxes will he pay if the tax rate on interest income is 30 percent and the tax rate on capital gain income is 36 percent?

c) What is the after-tax holding-period return on the bond?

Question 2: A bond currently has a maturity of 10 years and pays a 7 percent semi-annual coupon. The yield to maturity is also 7' percent. The convexity of this bond is 257.

a) What is the duration of the bond?

b) Find the actual price of the bond assuming that its yield to maturity immediately increases from 7 percent to H percent (with maturity still l0 years).

Reference no: EM133331599

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