🏷️ LIMITED TIME OFFER: GET 20% OFF GRADE+ YEARLY SUBSCRIPTION β†’
Log in
Economics
1
answer
0
watching
403
views

If an investor has a tax rate on interest income of 25% and the inflation rate is 4%, which bond has the lowest expected after-tax real interest rate?

(a) A Treasury bond paying 9%

(b) A corporate bond paying 8%

(c) A Treasury bond paying 7%

(d) A municipal bond paying 6%

Answer: C

Why is the answer C and not D?

Watch
1
answer
0
watching
403
views

For unlimited access to Homework Help, a Homework+ subscription is required.

Joshua Stredder
Joshua StredderLv10
28 Sep 2019

Unlock all answers

Get 1 free homework help answer.
Already have an account? Log in
Share

Related textbook solutions

Principles of Economics
2nd Edition, 2017
Openstax
ISBN: 9781947172364
Principles of Macroeconomics
2 Edition,
Openstax
ISBN: 9781947172388
Principles of Microeconomics
2 Edition,
Openstax
ISBN: 9781947172340

Related questions

11.1 The four fundamental factors that affect the supply and demand for investment capital that affect interest rates are investment opportunities, time preferences for consumption, risk, and inflation. Explain how each of these factors affects the cost of money.

11.2 The interest rate required by investors on a debt security can be expressed by the following equation:

Interest rate = RRF + IP + DRP + LP + MRP + CRP. Define each term of the equation, and explain how it affects the interest rate.

11.3 Briefly describe the following types of debt: a. Term loan b. Bond c. Mortgage bond d. Senior debt; junior debt, e. Debenture f. Municipal bond

11.4 Indenture Restrictive covenant Trustee Call provision (1) (2) (3) (4). What are the three primary bond rating agencies? What do bond ratings measure? How do investors interpret bond ratings? What is the difference between an A-rated bond and a B-rated bond? Why are bond ratings important to investors? Why are ratings important to businesses that issue bonds?

11.5 What is interest rate risk? What is price risk? What is a reinvestment rate risk?

11.6Β Is this statement true or false? The values of outstanding bonds change whenever the going rate of interest changes. In general, short-term interest rates are more volatile than long-term rates, so short-term bond prices are more sensitive to interest rate changes than are long-term bond prices. Explain your answer.

A bond: Maturity: 15 years from now, face value: $1000, coupon: $0, bond price: $500. A personal income tax is defined as a tax on an income flow. In contrast, a capital gains tax is a tax on the sale or realization of an asset that was purchased as cost lower than the purchased price. For this question, assume that the income tax is 25% and the capital gains tax is 10%.

(a) Suppose you need to sell the bond in 5 years from now, what is the annualized after-tax return on this sale?

(b) Suppose the income tax increased to 0.3, what is the new bond price and the new yield to maturity?

(c) Supose interest rate on the cash flows for cash flows 5 years from now increase and the interest rates on cash flows 10 years from now falls, but in a way that the bond price stays constant. What is the new yield to maturity?

Market shares of chocolate makers are in the table.


Firm

Market share
(percent)

Mayfair, Inc

15

Bond, Inc

10

Magic, Inc

25

All Natural, Inc

10

Truffles, Inc

25

Gold, Inc

15

a. Calculate the four firm concentration ratio.

b. Calculate the Herfindahl-Hirschman Index.

5. If the interest rate is 6 percent, what is the present value of a bond that matures in two years, pays $85 one year from now and $1,085 two years from now?

6. Suppose that eLake, an online auction site, is paying a dividend of $2 per share. You expect this dividend to grow 4 percent per year, and the interest rate is 10 percent.

a) What is the most you would be willing to pay for a share of stock in eLake?

b) If the interest rate is 6 percent, what is the most you would be willing to pay?

c) Comparing your answers to a and b, when interest rates decline, would you expect stock prices in general to rise or fall?

Weekly leaderboard

Home
Homework Help 3,900,000
Economics 400,000
Start filling in the gaps now
Log in