business HW

Bus-121 Spring 2017 Bond Prices and Yields: Name: _________________ Instructor: Frank Caperino Chap 11 Worksheet 1) A married couple from California is in the 35% Federal tax bracket and the 11% California tax bracket. They are considering a 5% Arizona municipal bond (Federal tax free), a 4.5% California bond (double tax free) or a 7.5% corporate bond (fully taxable). Which bond offers the highest after-tax interest rate? Taxable Equivalent Yield (Fed only)= Municipal Bond Yield 1.0-Federal Tax Bracket Taxable Equivalent Yield (Fed & State)= Municipal Bond Yield 1.0-[Fed Tax Bracket+State Tax Bracket] 2) A bond with a Par Value of $1,000 that pays 9% is currently priced at $1,200. What is the nominal (coupon) interest rate? Calculate the current yield. Current Yield = Annual Interest

Market Price 3) The Bond in problem #2 is a 20-year bond. Again, the face value is $1,000, the Market value

is $1,200, and the coupon (nominal) interest rate is 9%. Calculate the Yield to Maturity (YTM).

Yield to Maturity = Annual Interest + (Par Value-Market Value) / (Number of Years to Maturity) (Par Value + Market Value) / (2)