Finance Investment Help
Geoge
BKM_Ess_10e_Ch02_Student1.xlsx2-14
| Suppose that short-term municipal bonds currently offer yields of 4%, while comparable taxable bonds pay 5%. Which gives you the higher after-tax yield? | ||
| ST municipal bond yield | ||
| Taxable bond yield | ||
| Solution | ||
| After-Tax Yield = Rate on the Taxable Bond x (1 － Tax Rate) | ||
| Tax bracket | After tax yield on taxable bond | Higher yield |
| a. | 0.00% | |
| b. | 0.00% | |
| c. | 0.00% | |
| d. | 0.00% | |
2-18
| Turn to Figure 2.8 (listed below) and look at the listing for General Dynamics. a. What was the firm’s closing price yesterday? b. How many shares could you buy for $5,000? c. What would be your annual dividend income from those shares? d. What must be General Dynamics’ earnings per share? | |||
| Close | |||
| Net Chg | |||
| Div | |||
| Yield | |||
| PE | |||
| Funds | |||
| Solution | |||
| a. | Yesterday's closing price = | $ - 0 | |
| b. | Shares purchased = | ERROR:#DIV/0! | rounded to the lower share |
| c. | Annual dividend = | ERROR:#DIV/0! | |
| d. | EPS = | ERROR:#DIV/0! | |
2-26
| Turn back to Figure 2.10 (listed below) and look at the Apple options. Suppose you buy an October expiration call option with exercise price $100. a. If the stock price in October is $102, will you exercise your call? What are the profit and rate of return on your position? b. What if you had bought the October call with exercise price $95? c. What if you had bought an October put with exercise price $100? | ||||
| Call | Put | |||
| Strike | Last | Volume | Last | Volume |
| August | ||||
| August | ||||
| August | ||||
| August stock price | ||||
| Solution | ||||
| a. | Gross profit | $ - 0 | ||
| Cost of options | $ - 0 | |||
| Net Profit | $ - 0 | |||
| Rate of return | ERROR:#DIV/0! | |||
| b. | Gross profit | $ - 0 | ||
| Cost of options | $ - 0 | |||
| Net Profit | $ - 0 | |||
| Rate of return | ERROR:#DIV/0! | |||
| c. | Gross profit | $ - 0 | ||
| Cost of options | $ - 0 | |||
| Net Profit | $ - 0 | |||
| Rate of return | ERROR:#DIV/0! | |||
2-32
| Find the after-tax return to a corporation that buys a share of preferred stock at $40, sells it at year-end at $40, and receives a $4 year-end dividend. The firm is in the 30% tax bracket. | |
| Preferred stock purchase price | |
| Preferred stock sales price | |
| Dividend | |
| Tax bracket | |
| Solution | |
| Before tax income | $ - 0 |
| Taxable income | $ - 0 |
| Income taxes | $ - 0 |
| After tax income | $ - 0 |
| After tax rate of return | ERROR:#DIV/0! |
