25. You are planning to buy a 10-year zero-coupon bond (assume annual discounting) with a face...
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25. You are planning to buy a 10-year zero-coupon bond (assume annual discounting) with a face value of $1000 that is currently selling at $403.51. Note that it is an OID issue. Suppose you bought this bond today at the market price. If the yield to maturity falls to 9% by the end of the first year (after a year) and you sell the bond, what would be your after-tax rate of return? Assume your marginal tax rate on interest income is 25% and the tax rate on capital gains is 15%. What is your after-tax return on the bond? 9.76% b. 9.88% C. 10.45% d. 10.86% c. 11.04% Page 25. You are planning to buy a 10-year zero-coupon bond (assume annual discounting) with a face value of $1000 that is currently selling at $403.51. Note that it is an OID issue. Suppose you bought this bond today at the market price. If the yield to maturity falls to 9% by the end of the first year (after a year) and you sell the bond, what would be your after-tax rate of return? Assume your marginal tax rate on interest income is 25% and the tax rate on capital gains is 15%. What is your after-tax return on the bond? 9.76% b. 9.88% C. 10.45% d. 10.86% c. 11.04% Page
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