aftertax yield question in qbank
Hi guys,
i have a question from qbank which i like to seek some clarification.
A municipal bond selling at 12% above par offers a yield of 3.2%. A taxable Treasury note selling at an 8% discount offers a yield of 4.6%. An investor in the 32.5% tax bracket wishes to purchase an equal dollar amount of both bonds. The aftertax yield of the twobond portfolio is closest to:
A) 4.67%.
B) 2.63%.
C) 3.15%.
Your answer: B was incorrect. The correct answer was C) 3.15%.
The aftertax yield of the Treasury note is the stated yield times one minus the tax rate, or 4.6% times 67.5%, or 3.1%. To calculate the portfolio yield, take the average aftertax yields of both bonds, which is 3.15%.
=
My calculations are:
municipal bond = 0.0032 * (10.325) * 0.5 = 1.55
Treasury note = 0.0046 * (10.325) * 0.5 = 1.08
1.05 + 1.08 = 2.63%
The answer from qbank seems like it never include the municipal bond in the calculation. Is it because it is tax exempt?
thanks |
发表于 2013-4-8 15:45
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