Question: You are debating between adding two bonds to your portfolio. The first bond, is an Apple bond with ten years to maturity, a price of
You are debating between adding two bonds to your portfolio. The first bond, is an Apple bond with ten years to maturity, a price of $500, zero coupon payments, and a face value of $1,000. The second bond is a tax-exempt bond issued by the state of Missouri with a yield to maturity of 4%. The before-tax yield to maturity of the first bond is . If your tax rate is 40%, the after-tax yield of the first bond is and you should prefer buying . (a) 6.35%; 3.81%; bond 2 (b) 7.18%; 2.87%; bond 2 (c) 10.78%; 4.31%; bond 2 (d) 7.18%; 4.31%; bond 1
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