What would fully-taxable corporate bond

Assignment Help Financial Management
Reference no: EM131084547

Emily is comparing two bonds that she is thinking about purchasing. One is a municipal bond issued by her home state with a 4% yield that would be free from both federal and state taxation. Emily is in the 25% federal tax bracket and the 5% state tax bracket. What would a fully-taxable corporate bond have to yield in order to produce the same after-tax return as the 4% municipal bond? Show work including intermediate steps. Express your answer as a percentage rounded to two decimal places. (Hint: You cannot base the answer on the sum of the tax rates. Use the appropriate equation.)

Reference no: EM131084547

Questions Cloud

Subject to the same randomness of wind and tide : We continue Problem 5.8.2 where the vector X of finish times has correlated components. Let W denote the finish time of the winning boat. We wish to estimate P[W ≤ 25], the probability that the winning boat finishes in under 25 minutes.
Calculate the current yield on this bond : Megan owns a 10-year bond with a par value of $1,000 and a coupon rate of 8%. The current market price of this bond is $1,194. If market interest rates rise, will the market price of Megan’s bond change? If so, in which direction? Explain. Calculate ..
Hymn for a weekend : Please watch the Coldplay video for "Hymn for a Weekend" (on YouTube) and listen to the lyrics. Then answer the following questions
What will your interest payments be next year : You have just purchased a 10-year TIPS with face value $1,000 and a 4% coupon rate. Inflation for the year turns out to be 6%. What will your interest payments be next year? Show work or explain.
What would fully-taxable corporate bond : Emily is comparing two bonds that she is thinking about purchasing. One is a municipal bond issued by her home state with a 4% yield that would be free from both federal and state taxation. Emily is in the 25% federal tax bracket and the 5% state tax..
Analyze the benefits and drawbacks of fixed-price contracts : Analyze the benefits and drawbacks of fixed-price contracts from the perspective of a contractor. Analyze the benefits and drawbacks of cost-reimbursement contracts from the perspective of the federal government.
Find the conversion premium in dollars and in percent : A company in the semiconductor industry has a $1,000 convertible bond with a conversion ratio of 32 and a coupon of 3.9%. The bond is currently priced at $740. The company’s stock trades at $19, and pays an annual dividend of $0.75. Find the conversi..
Review psychodynamic humanistic and behavioral techniques : Imagine that you are suffering from test anxiety and that you are researching a different therapy approaches that might help you overcome your anxiety. Review psychodynamic, humanistic, behavioral, cognitive, and family and group therapy technique..
Course name-criminology : What if you were born in a poor neighborhood and your parents were working two jobs to survive. Your mom gets ill and cannot work anymore.

Reviews

Write a Review

Financial Management Questions & Answers

  Realized return is known as the holding period yield

The YTM on a bond is the interest rate you earn on your investment if interest rates don’t change. If you actually sell the bond before it matures, your realized return is known as the holding period yield (HPY). Suppose that today you buy a bond wit..

  Price of put option necessary to guarantee your sales price

You own a lot in Key West, Florida, that is currently unused. Similar lots have recently sold for $1,370,000. Over the past five years, the price of land in the area has increased 5 percent per year, with an annual standard deviation of 28 percent. W..

  What happens to the expected return on the stock

The common stock and debt of Northern Sludge are valued at $70 million and $30 million, respectively. Investors currently require a return of 16.0% on the common stock and 7.7% on the debt. If Northern Sludge issues an additional $13 million of commo..

  Make monthly deposits-retirement account

You are to make monthly deposits of $750 into a retirement account that pays 10 percent interest compounded monthly. Required: If your first deposit will be made one month from now, how large will your retirement account be in 34 years?

  Difference between individual and organizational ethics

What is the difference between individual and organizational ethics? Why is it important that we understand that difference in a business environment?

  The median voter is powerful because

The median voter is powerful because

  Equipment is depreciated straight-line to a zero book value

Thornley Machines is considering a 3-year project with an initial cost of $1,080,000. The project will not directly produce any sales but will reduce operating costs by $640,000 a year. The equipment is depreciated straight-line to a zero book value ..

  What is the price of the stock today

A company has just paid a dividend of $0.52. Next year's dividend is expected to be 15% higher, after which the dividend will remain the same indefinitely. Assuming shareholders require a rate of return of 20%, what is the price of the stock today?

  Growth option and investment timing option

ow might Wal-Mart (or another large retailer) take advantage of each of the following: Do not merely provide a definition? Flexibility option, Growth option, Investment timing option, Abandonment option, Decision-tree analysis

  What is the aftertax cash flow from the sale of this asset

Consider an asset that costs $576,000 and is depreciated straight-line to zero over its eight-year tax life. The asset is to be used in a five-year project; at the end of the project, the asset can be sold for $167,000. If the relevant tax rate is 35..

  Planning to make monthly deposits-retirement account

You are planning to make monthly deposits of $450 into a retirement account that pays 8 percent interest compounded monthly. If your first deposit will be made one month from now, how large will your retirement account be in 25 years?

  Determine the desirability of investment projects

In general, a dollar received today is more valuable than a dollar received one year from now. We can invest the dollar we have today to earn interest so that at the end of one year we will have more than one dollar. determine the desirability of inv..

Free Assignment Quote

Assured A++ Grade

Get guaranteed satisfaction & time on delivery in every assignment order you paid with us! We ensure premium quality solution document along with free turntin report!

All rights reserved! Copyrights ©2019-2020 ExpertsMind IT Educational Pvt Ltd