Question: Please answer part b) and part e) A newly issued bond pays its coupons once a year. Its coupon rate is 5.3%, its maturity is

Please answer part b) and part e) A newly issued bond paysits coupons once a year. Its coupon rate is 5.3%, its maturityis 20 years, and its yield to maturity is 8.3%. a. Findthe holding-period return for a one-year investment period if the bond isselling at a yield to maturity of 7.3% by the end ofPlease answer part b) and part e)

A newly issued bond pays its coupons once a year. Its coupon rate is 5.3%, its maturity is 20 years, and its yield to maturity is 8.3%. a. Find the holding-period return for a one-year investment period if the bond is selling at a yield to maturity of 7.3% by the end of the year. (Do not round intermediate calculations. Round your answer to 2 decimal places.) Answer is complete and correct. Holding-period return 19.64 % b. If you sell the bond after one year when its yield is 7.3%, what taxes will you owe if the tax rate on interest income is 40% and the tax rate on capital gains income is 30%? The bond is subject to original-issue discount (OID) tax treatment. (Do not round intermediate calculations. Round your answers to 2 decimal places.) & Answer is complete but not entirely correct. Tax on interest income Tax on capital gain Total taxes $ $ $ 19.20 X 26.74 X 45.94% c. What is the after-tax holding-period return on the bond? (Do not round intermediate calculations. Round your answer to 2 decimal places.) Answer is complete and correct. After-tax holding-period return 12.88 % d. Find the realized compound yield before taxes for a two-year holding period, assuming that (i) you sell the bond after two years, (ii) the bond yield is 7.3% at the end of the second year, and (iii) the coupon can be reinvested for one year at a 3.3% interest rate. (Do not round intermediate calculations. Round your answer to 2 decimal places.) Answer is complete and correct. Realized compound yield before taxes 13.11 % e. Use the tax rates in part (b) to compute the after-tax two-year realized compound yield. Remember to take account of OID tax rules. (Do not round intermediate calculations. Round your answer to 2 decimal places.) Answer is complete but not entirely correct. After-tax two-year realized compound yield 12.75 %

Step by Step Solution

There are 3 Steps involved in it

1 Expert Approved Answer
Step: 1 Unlock blur-text-image
Question Has Been Solved by an Expert!

Get step-by-step solutions from verified subject matter experts

Step: 2 Unlock
Step: 3 Unlock

Students Have Also Explored These Related Finance Questions!