Business, 24.12.2019 05:31 ruslffdr

Anewly issued bond pays its coupons once a year. its coupon rate is 4.1%, its maturity is 15 years, and its yield to maturity is 7.1%.

a. find the holding-period return for a one-year investment period if the bond is selling at a yield to maturity of 6.1% by the end of the year. (do not round intermediate calculations. round your answer to 2 decimal places.)
holding-period return %
b. if you sell the bond after one year when its yield is 6.1%, what taxes will you owe if the tax rate on interest income is 40% and the tax rate on capital gains income is 30%? the bond is subject to original-issue discount (oid) tax treatment. (do not round intermediate calculations. round your answers to 2 decimal places.)
c. what is the after-tax holding-period return on the bond? (do not round intermediate calculations. round your answer to 2 decimal places.)
d. find the realized compound yield before taxes for a two-year holding period, assuming that (i) you sell the bond after two years, (ii) the bond yield is 6.1% at the end of the second year, and (iii) the coupon can be reinvested for one year at a 2.1% interest rate. (do not round intermediate calculations. round your answer to 2 decimal places.)
e. use the tax rates in part (b) to compute the after-tax two-year realized compound yield. remember to take account of oid tax rules. (do not round intermediate calculations. round your answer to 2 decimal places.)

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Answer from: chocolateFudge

a) 17.53%

b) $41 x 40% = $ 16.40

815.25 - 728.48 = 86.77 capital gain x 30% = $ 26.03

Total: 26.03 + 16.40 = $ 42.43 income tax expense

c) (815.25 + 41 - 42.43) / 728.48 - 1 = 0.1171425 = 11.71%

we recalculate the price of the bond with 13 years left to maturity

holding period return 26.94%

tax expense:

(41x1.02 + 41) x 0.4 = 33.14

(841.87 - 728.48) x 0.3 = 34.02

tax expense: 67.16

after tax return:

(841.87 + 41x1.021 + 41 - 67.16) /728.48 - 1 = 0.177209379 = 17.72%

Explanation:

We need to determinate the value of the bond at yield of 7.1% and at yield of 6.1% which is the sum of the present value of the maturity and coupon payment:

Purchase price:

$C \times \frac{1-(1+r)^{-time} }{rate} = PV\\$

Coupon payment = 1,000 x 0.041 =41.00

time15 years

rate0.071

$41 \times \frac{1-(1+0.071)^{-15} }{0.071} = PV\\$

PV$371.0773

$\frac{Maturity}{(1 + rate)^{time} } = PV$

Maturity 1,000.00

time 15.00

rate 0.071

$\frac{1000}{(1 + 0.071)^{15} } = PV$

PV 357.40

PV c $ 371.0773

PV m $ 357.4028

Total $ 728.4801

Selling Price

$C \times \frac{1-(1+r)^{-time} }{rate} = PV\\$

C41.00

time 14 (one-year past so maturity is more closer)

rate0.061

$41 \times \frac{1-(1+0.061)^{-14} }{0.061} = PV\\$

PV$378.7456

$\frac{Maturity}{(1 + rate)^{time} } = PV$

Maturity 1,000.00

time 14.00

rate 0.061

$\frac{1000}{(1 + 0.061)^{14} } = PV$

PV 436.50

PV c$378.7456

PV m $436.5004

Total$815.2460

Holding period return:

return / investment - 1

(815.25 + 41) / 728.48 - 1 = 0.175387059 = 17.53%

we recalculate the price of the bond with 13 years left to maturity

$C \times \frac{1-(1+r)^{-time} }{rate} = PV\\$

C41.00

time14

rate0.061

$41 \times \frac{1-(1+0.061)^{-14} }{0.061} = PV\\$

PV$378.7456

$\frac{Maturity}{(1 + rate)^{time} } = PV$

Maturity 1,000.00

time 13.00

rate 0.061

$\frac{1000}{(1 + 0.061)^{13} } = PV$

PV 463.13

PV c$378.7456

PV m $463.1269

Total$841.8725

and redo the return, tax and after-tax return:

(841.87 + 41x1.021 + 41) /728.48 - 1 = 0.269401333

Answer from: Quest

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Answer from: Quest

net worth is the difference between what you own and what you have. if you exceed your liabilities you have a positive net worth. if your liabilities are greater than your assets you have a negative net worth. its a snapshot of your financial situation. if you calculate your net worth you will see the end result of everything you've earned and spent as of now. net worth statements and all you asked of can you determine where you are, how to get where you want to be, if your spending to much. honestly it can tell you a lot of things. i can go on, but you can paint the picture from here.

explanation:

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