10-5

A newly issued bond pays its coupons once a year. Its coupon rate is 4.1%, its matunity is 15 years, and its yield to maturity is 7.1%. a. Find the hoiding-period retum for a one-year investment period if the bond is seting 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 (OD) tax treatment. (Do not round Intermediate calculationsRound your answers to 2 decimat places) Tax on interest income Tax on capital gain Total taxon c. What in the after-tax holding period return on the bond? (Do not round Intermediate calculation. Hound your answer to 2 decimal places) After-tax holding period retum d. Find the realized compound yield before faves for a two-year holding period, assuming that you sell the bond after two years, the bond yeld is 6.1% at the end of the second year, and (w) the coupon can be relnvested for one year at a 2.1% interest rate. (Do not round intermediate calculations, Round your answer to 2 decimal places) Roalized compound yield before taxen % e. Use the tax rates in part (6) to compute the after-tax two-year realized compound yield. Remember to take account of Oto tax rules. (Do not round intermediate enlculations, Round your answer to 2 decimal places.) After-tax two-year realized compound yield