BONUS: Consider Andy who bought a corporate AAA bond 4 years ago with a face value...

 

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BONUS: Consider Andy who bought a corporate AAA bond 4 years ago with a face value of $5,800, a coupon rate of 3.25%, and 7 years to maturity. In he was in the 32% tax bracket. Due to a risky investment in Bitcoin, his wealth rose brining him up to the 40% tax bracket in 2022. He no longer want his cash to be tied up in bonds, so he will sell the bond next year. What will be his rate of return? Suppose that he paid $4,500 for the bond, and a constant interest rate of 5%. Hint: only coupon payments and capital gains are taxed BONUS: Consider Andy who bought a corporate AAA bond 4 years ago with a face value of $5,800, a coupon rate of 3.25%, and 7 years to maturity. In he was in the 32% tax bracket. Due to a risky investment in Bitcoin, his wealth rose brining him up to the 40% tax bracket in 2022. He no longer want his cash to be tied up in bonds, so he will sell the bond next year. What will be his rate of return? Suppose that he paid $4,500 for the bond, and a constant interest rate of 5%. Hint: only coupon payments and capital gains are taxed

Answer rating: 100% (QA)

SOLUTION To calculate Andys rate of return we need to determine the cash flows from the bond taking into account the coupon payments the capital gain ... View the full answer