The Lancaster State Bank is thinking about purchasing a corporate bond that pays a coupon of 8.5%. The bank has a marginal tax rate of 25%. What is the after-tax yield on this bond?

6.375%

Explanation:

The Lancaster State Bank is thinking about purchasing a corporate bond that has a yield of 8.5%. This bank has a marginal tax rate of 25%.

The after-tax yield on this bond would be 6.375%

The after tax yield is 6.375%

Explanation:

The after tax yield is the amount of coupon rate after the tax deduction which will be calculated by this formula:

ATY= i(1- tax Rate)

ATY is the after tax yield

i is the coupon interest rate which is 8.5%

tax rate is the marginal tax which will be adjusted on the rate given to give us the after tax yield so we substitute on the above formula:

ATY = 8.5%(1 - 25%) then we compute on calculator

ATY= 6.375% which is the after tax yield of this bond.

thereafter you get the percentage yield which is the yield of a coupon adjusted for tax.

answertaxable income;

of the three mortgage options that demarco and tanya have to choose from, the balloon payment mortgage would be their best option, over adjustable payment and fixed payment plans.ultimately, the balloon payment plan would save demarco and tanya overall, in interest, would cost less monthly, and they would only have to make these payments for 8 years, opposing to 30 years for adjustable or fixed payment plans. 

overall, demarco and tanya would save $80,811 if they chose balloon payments over fixed payments, and would save $116,711 if they choose balloon payments over adjustable payments. benefits with choosing fixed payments over adjustable payments is that, in the end, the payments will still be $836.30 a month, while with adjustable payments, the initial monthly payments will be $763.38 to $1082.70 a month, ultimately leading to a more costly purchase. benefits with choosing fixed payments over balloon payments are not present. benefits in choosing adjustable payments over is that it has a lower interest rate, and starts with lower monthly payments initially. benefits in choosing adjustable payments over balloon payments include a lower interest rate, and lower initial monthly payments. benefits in choosing balloon payments over fixed payments include lower interest rates, lower overall price, lower monthly payments, takes less time to pay off, and does not require a downpayment. benefits in choosing balloon payments over adjustable payments include, lower monthly payments (when averaged), takes less time to pay off, and lower overall price.

hence, option c, balloon payments, is the best option for demarco and tanya to make this purchase, for it will save them a minimum of $80811, and a maximum of $116,711.