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%.Required: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...

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.

tax on interest income

tax on capital gain

total taxes

What is the after-tax holding-period return on the bond?

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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.

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.

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