Suppose a corporate bond an investments officer would like to purchase for her bank has a before-tax yield of 8.98 percent and the bank is in the 35 percent federal income tax bracket. What is the bond's after-tax gross yield? What after-tax rate of return must a prospective loan generate to be competitive with the corporate bond? Does a loan have some advantages for a lending institution that a corporate bond would not have?
Answer to relevant QuestionsWhat is the net after-tax return on a qualified municipal security whose nominal gross return is 6 percent, the cost of borrowed funds is 5 percent, and the financial firm holding the bond is in the 35 percent tax bracket? ...Bacone National Bank has structured its investment portfolio, which extends out to four-year maturities, so that it holds about $11 million each in one-year, two-year, three-year, and four-year securities. In contrast, ...Calculate the yield to maturity of a 20-year U.S. government bond that is selling for $975 in today’s market and carries a 5 percent coupon rate with interest paid semiannually.A bank’s economics department has just forecast accelerated growth in the economy, with GDP expected to grow at a 4.5 percent annual growth rate for at least the next two years. What are the implications of this economic ...How does the sources and uses of funds approach help a manager estimate a financial institution’s need for liquidity?
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