The first three columns are inputs. P and CR are, respectively, the price and coupon rate...

 

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The first three columns are inputs. P and CR are, respectively, the price and coupon rate of an annual 1.5-year coupon bond. TR is the marginal tax rate. The face value is $1,000. The last four columns are outputs. yp is the pretax yield. ya is the after-tax yield implied by the potentially-flawed formula. ya' is the after-tax yield assuming capital gains are only taxed at maturity and coupon payments are taxed normally. ya" is the after-tax yield assuming capital gains are only taxed at maturity and coupon payments are tax- exempt. I have already filled out the first row; it is the example we worked through in class. The goal for this exercise is to see how these yields change as the inputs change. P CR TR $900 10% 40% ya ya' ya" 17.894% 10.736% 10.878% 15.234% $1,000 10% 40% $900 11% 40% $900 10% 44% The first three columns are inputs. P and CR are, respectively, the price and coupon rate of an annual 1.5-year coupon bond. TR is the marginal tax rate. The face value is $1,000. The last four columns are outputs. yp is the pretax yield. ya is the after-tax yield implied by the potentially-flawed formula. ya' is the after-tax yield assuming capital gains are only taxed at maturity and coupon payments are taxed normally. ya" is the after-tax yield assuming capital gains are only taxed at maturity and coupon payments are tax- exempt. I have already filled out the first row; it is the example we worked through in class. The goal for this exercise is to see how these yields change as the inputs change. P CR TR $900 10% 40% ya ya' ya" 17.894% 10.736% 10.878% 15.234% $1,000 10% 40% $900 11% 40% $900 10% 44%