1. The 6 percent annual coupon bonds of Greentree, Inc. are selling for $1,020, have a face...

Question:

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?

Coupon
A coupon or coupon payment is the annual interest rate paid on a bond, expressed as a percentage of the face value and paid from issue date until maturity. Coupons are usually referred to in terms of the coupon rate (the sum of coupons paid in a... Face Value
Face value is a financial term used to describe the nominal or dollar value of a security, as stated by its issuer. For stocks, the face value is the original cost of the stock, as listed on the certificate. For bonds, it is the amount paid to the... Maturity
Maturity is the date on which the life of a transaction or financial instrument ends, after which it must either be renewed, or it will cease to exist. The term is commonly used for deposits, foreign exchange spot, and forward transactions, interest...