1.Provide me with all the pertinent information on the following two bonds UConn (CUSIP: 914233W98) and Morgan Stanley (CUSIP: 61744YAH1). This should include the full name, relevant dates (issued, maturity, callable), status (senior, junior, etc.), terms (callable), any specified use of funds, and credit risk. (25 points). For the UConn bond, it may not be traded often so you can find relevant information on EMMA.msrb.org. For Morgan Stanley's bond you may want to sign up for guest access to a brokerage account (I've checked, and it is on both Vanguard and Fidelity).

2.Describe implicit taxes, who benefits from implicit taxes, and which bond bears them? Compute the implicit taxes on this transaction? (HINT: use yields)

In equilibrium these two bonds must yield the same after-tax rate of return. Therefore, what is the marginal bond investor's tax rate (hint: at what tax rate does an investor not get any tax benefit to buying either bond)?

3.Assume that there are two investors: one is retired and has a marginal tax rate of 15%, the other wealthy and has a marginal tax rate of 39.6%. Each investor can choose the corporate or municipal bond. Which investment does each take? Assume each taxpayer invests $100,000, what are their after-tax rate of return on each investment (please show math).

4.Next assume that both investors are subject to a flat state tax rate of 6%. Does this impact their current decision? Without going through the math, briefly discuss at what marginal tax rates does including a state tax impact the choice to invest in a corporate or municipal bond (versus being tax free at the state level)?

5. Choose which is a better investment and layout the two calculations in an easy-to-read format. Consider this client someone that does not know a lot about investing. Present the information in a natural way for them to "digest" the information (i.e., don't use terms most people aren't familiar with, overly complicated formulas, etc.). This should look like something you would present to a client.

Answer rating: 100% (QA)

1Bond Information UConn Bond Full Name University of Connecticut General Obligation Bonds Relevant Dates Issued date varies typically for a term of 20... View the full answer