Question
1. Today is Jan. 1, 2018. Below is a Treasury Strip quote: Treasury Bond, Stripped Principal Maturity Bid Asked Change Ask Yield 2025 Jan 1
1. Today is Jan. 1, 2018. Below is a Treasury Strip quote:
| Treasury Bond, Stripped Principal | ||||
| Maturity | Bid | Asked | Change | Ask Yield |
| 2025 Jan 1 | 91.052 | 91.250 | -0.125 | ?????? |
What is the Asked Yield?
2.
A TIP was auctioned on April 1, 2017 at an interest rate of 0.450%, maturity April 1, 2027, face amount of $10,000,000. The semi-annual inflation rate over the next 2 years are expected to be as follows:
6-month inflation rate at Oct. 1, 2017: 1.00% 6-month inflation rate at Apr. 1, 2018: 0.50% 6-month inflation rate at Oct. 1, 2018: -0.35% 6-month inflation rate at Apr. 1, 2019: -0.75%
What is the (a) inflation adjusted amount and (b) interest payment on Oct. 1, 2017, April 1, 2018, Oct. 1, 2018, and Apr. 1, 2019?
3. An investor is in the 25% tax bracket. A corporate bond has a yield of 6%. A muni-bond has a yield of 4%.
- What is the before-tax yield on each bond?
- What is the after-tax yield on each bond?
- Which bond is the better investment? Why?
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