At Westonci.ca, we provide clear, reliable answers to all your questions. Join our vibrant community and get the solutions you need. Connect with a community of professionals ready to help you find accurate solutions to your questions quickly and efficiently. Explore comprehensive solutions to your questions from a wide range of professionals on our user-friendly platform.
Sagot :
Answer:
MUNICPAL BOND YTM; r= 7.00%
CORPORATE BOND YTM; r= 7.35%
Explanation:
Given the data in the question;
To get the after tax yield to maturity (YTM)
MUNICPAL BOND
Purchase price PV of coupons + PV of Face value at maturity
[(1000×8.5%) × (1 - 1.07⁻⁵] / 0.07) + (1000/1.07⁵)
348.516 + 712.98 = 1061.5
After-tax coupon payment 1000 × 8.5% = 85
COUPONS RECORD ON MUNICIPAL ARE
TAX-EXCEMPT.
Par value 1000
Calculated YTM 1061.5 = (85× (1-(1+r)⁻⁵)/r) + (1000/(1+r)⁵)
r= 7.00%
CORPORATE BOND
Purchase price PV of coupons +PV of Face value at maturity
((1000×12%) × (1-1.115⁻⁵)/0.115) +(1000/1.115⁵)
437.985 + 580.264 = 1018.25
After-tax coupon payment 1000 × 12% × (1 - 35%) = 78
Par value 1000
Calculated YTM 1018.25 = (78× (1-(1+r)⁻⁵)/r) + (1000/(1+r)⁵)
r= 7.35%
MUNICPAL BOND YTM; r= 7.00%
CORPORATE BOND YTM; r= 7.35%
Thank you for your visit. We're dedicated to helping you find the information you need, whenever you need it. We appreciate your time. Please revisit us for more reliable answers to any questions you may have. We're glad you chose Westonci.ca. Revisit us for updated answers from our knowledgeable team.