Question
A newly issued bond pays its coupons once a year. Its coupon rate is 4.1%, its maturity is 15 years, and its yield to maturity
A newly 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%. 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.)
Tax on interest income_____
Tax on capital gain_____
Total tax_________
c. What is the after-tax holding-period return on the bond? (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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