The corporate treasurer of Aggieland Fireworks is considering the purchase of a BBB-rated bond that carries a
Question:
The corporate treasurer of Aggieland Fireworks is considering the purchase of a BBB-rated bond that carries a 9 percent coupon. The BBB-rated security is taxable, and the firm is in the 46 percent marginal tax bracket. The face value of this bond is $1,000.
A financial analyst who reports to the corporate treasurer has alerted him to the fact that a municipal obligation is coming to the market with a 5 12 percent coupon. The par value of this security is also $1,000.
a. Which one of the two securities do you recommend the firm purchase? Why?
b. What must the fully taxed bond yield before tax to make it comparable with the municipal offering?
Face ValueFace value is a financial term used to describe the nominal or dollar value of a security, as stated by its issuer. For stocks, the face value is the original cost of the stock, as listed on the certificate. For bonds, it is the amount paid to the... Par Value
Par value is the face value of a bond. Par value is important for a bond or fixed-income instrument because it determines its maturity value as well as the dollar value of coupon payments. The market price of a bond may be above or below par,...
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COMPARISON OF AFTERTAX YIELD DATA Bond ...View the full answer
Foundations Of Finance
ISBN: 9780134083285
9th Edition
Authors: Arthur J. Keown, John H. Martin, J. William Petty
