a) What is a sinking fund provision Consider two bonds, A and B, which are identical in every respect except that Bond A has a sinking fund and Bond B does not Which bond would have the higher required rate of return (YTM) 11 b) What is a convertible bond Consider two bonds, A and B, which are identical in every respect except that Bond A is a convertible bond and Bond B does not have a conversion feature Which bond would have the higher required rate of return (YTM) c) What is a municipal bond What tax advantage do they receive a An investor is choosing between two bonds an AA rated corporate bond with a yield to maturity (YTM) of 11 5 and an AA rated municipal bond with a yield to maturity (YTM) of 8 5 If the investor has a 40 percent marginal federal tax rate, which bond would provide a higher after tax return if held to maturity b Compute the YTM for the corporate bond that make its after tax return equal to the YTM for the municipal bond

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Question: a) What is a sinking fund provision? Consider two bonds, A and B, which are identical in every respect except that Bond A has a

What is a sinking fund provision? Consider two bonds, A and B, which are identical in every respect except that Bond A has a sinking fund and Bond B does not. Which bond would have the higher required rate of return (YTM)? 11.

What is a convertible bond? Consider two bonds, A and B, which are identical in every respect except that Bond A is a convertible bond and Bond B does not have a conversion feature. Which bond would have the higher required rate of return (YTM)?

What is a municipal bond? What tax advantage do they receive? a. An investor is choosing between two bonds: an AA-rated corporate bond with a yield to maturity (YTM) of 11.5% and an AA-rated municipal bond with a yield to maturity (YTM) of 8.5%. If the investor has a 40 percent marginal federal tax rate, which bond would provide a higher after-tax return if held to maturity? b. Compute the YTM for the corporate bond that make its after-tax return equal to the YTM for the municipal bond?

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