1. The 6 percent annual coupon bonds of Greentree, Inc. are selling for $1,020, have a face value of $1,000, and have a yield to maturity of 5.43 percent. How many years will it be until these bonds mature?
2. A 7 percent semi-annual coupon bond is priced at $1,028.33. The bond has a $1,000 face value and a yield to maturity of 6.49 percent. How many years will it be until this bond matures?
3. Suppose taxable bonds are currently yielding 8%, while at the same time, the munis of comparable risk and maturity are yielding 6%. Which is more attractive to an investor in the 40% tax bracket?
4. Refer to #1 and determine the break-even tax rate. How do you interpret this rate?
5. Both a default-free two-year government bond and a two-year corporate bond pay a 7% coupon rate. However, the government bond sells at par (i.e. $1000) and the corporate bond sells at $982.16. What is the yield (YTM) on these two bonds? Assume annual payments
6. Refer to #3. Why is there a difference in the yields?

  • CreatedAugust 05, 2013
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