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LOS i: Compute the after-tax yield of a taxable security and the tax-equivalent yield of a tax-exempt security.
Q1. A municipal bond carries a coupon of 6.75% and is traded at par. To a taxpayer in the 28% tax bracket, this bond provides an equivalent taxable yield of:
A) 9.38%.
B) 6.75%.
C) 8.53%.
Q2. What would the marginal tax rate have to be for an investor to be indifferent between a 6% yield on tax exempt municipal bonds and a 10% corporate bond?
A) 60%.
B) 20%.
C) 40%.
Q3. 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 after-tax yield of the two-bond portfolio is closest to:
A) 4.67%.
B) 3.15%.
C) 2.63%.
Q4. A municipal bond carries a coupon of 6% and is traded at par. To a taxpayer in the 34% tax bracket, this bond provides an equivalent taxable yield of:
A) 8.53%.
B) 6.00%.
C) 9.09%.
Q5. Consider a corporate bond with a yield of 6.8% and a municipal bond (with equivalent risk) with a 4.9% yield. Which of the following statements is most accurate?
A) An investor with a marginal tax rate of 40% prefers the corporate bond.
B) An investor with a marginal tax rate of 28% is indifferent between the two bonds.
C) The tax-equivalent yield for an investor with a 35% marginal tax rate is 7.32%.
Q6. A 6% annual coupon paying bond has two years remaining to maturity and is priced at par. Assuming a 40% tax rate, the after-tax yield for this bond is closest to:
A) 4.8%.
B) 3.6%.
C) 2.4%.
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发表于 2009-3-2 17:22
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