Case Study 1 - Municipal Bonds Task: Provide me with all of the pertinent information on the following two bonds UConn (CUSIP: 914233W98) and Morgan Stanley (CUSIP: 61744 YAH1). This should include the full name, relevant dates (issued, maturity, callable), status (senior, junior, etc), terms (callable), any specified use of funds, and credit risk. (25 points). For the UConn bond, it may not be traded often so you can find relevant information on EMMA.msrb.org. For Morgan Stanley's bond you may want to sign up for guest access to a brokerage account (I've checked and it is on both Vanguard and Fidelity). Describe implicit taxes, who benefits from implicit taxes, and which bond bears them? Compute the implicit taxes on this transaction? (HINT: use yields) (10 points) In equilibrium these two bonds must yield the same after-tax rate of return. Therefore, what is the marginal bond investor's tax rate (hint: at what tax rate does an investor not get any tax benefit to buying either bond)? (10 points) Assume that there are two investors: one is retired and has a marginal tax rate of 15%, the other wealthy and has a marginal tax rate of 39.6%. Each investor can choose the corporate or municipal bond. Which investment does each take? Assume lach taxpayer invests $100,000, what are their after-tax rate of return on each investment (please show math). (25 points) Next assume that both investors are subject to a flat state tax rate of 6%. Does this impact their current decision? Without going through the math, briefly discuss at what marginal tax rates does including a state taxes impact the choice to invest in a corporate or municipal bond (versus being tax free at the state level)? (20 points) Write a one-two page letter to the wealthy client advising her which is a better investment and layout the two calculations in an easy to read format. Consider this client someone that does not know a lot about investing. Present the information in a natural way for them to "digest" the information (1.e., don't use terms most people aren't familiar with, overly complicated formulas, etc). This should look like something you would present to a client. You will be graded on getting the right answer, style, writing clarity, and overall presentations. If you would like more information on what I am looking for on presentability see blackboard post in Week 0. (60 points) Additionally, each of you please send me a grade of each of your group members' participation. I plan to keep this portion of the grade hidden from view until the end of the course. This ensures that there is no retaliation between members of a group. As outlined in the syllabus, if I see issues with shirking, I reserve the right to adjust the groups. (10 participation points) Case Study 1 - Municipal Bonds Task: Provide me with all of the pertinent information on the following two bonds UConn (CUSIP: 914233W98) and Morgan Stanley (CUSIP: 61744YAH1). This should include the full name, relevant dates (issued, maturity, callable), status (senior, junior, etc), terms (callable), any specified use of funds, and credit risk. (25 points). For the UConn bond, it may not be traded often so you can find relevant information on EMMA.msrb.org. For Morgan Stanley's bond you may want to sign up for guest access to a brokerage account (I've checked and it is on both Vanguard and Fidelity). Describe implicit taxes, who benefits from implicit taxes, and which bond bears them? Compute the implicit taxes on this transaction? (HINT: use yields) (10 points) In equilibrium these two bonds must yield the same after-tax rate of return. Therefore, what is the marginal bond investor's tax rate (hint: at what tax rate does an investor not get any tax benefit to buying either bond)? (10 points) Assume that there are two investors: one is retired and has a marginal tax rate of 15%, the other wealthy and has a marginal tax rate of 39.6%. Each investor can choose the corporate or municipal bond. Which investment does each take? Assume lach taxpayer invests $100,000, what are their after-tax rate of return on each investment (please show math) (25 points) Next assume that both investors are subject to a flat state tax rate of 6%. Does this impact their current decision? Without going through the math, briefly discuss at what marginal tax rates does including a state taxes impact the choice to invest in a corporate or municipal bond (versus being tax free at the state level)? (20 points) Write a one-two page letter to the wealthy client advising her which is a better investment and layout the two calculations in an easy to read format. Consider this client someone that does not know a lot about investing. Present the information in a natural way for them to "digest" the information (i.e., don't use terms most people aren't familiar with, overly complicated formulas, etc). This should look like something you would present to a client. You will be graded on getting the right answer, style, writing clarity, and overall presentations. If you would like more information on what I am looking for on presentability see blackboard post in Week O. (60 points) Case Study 1 - Municipal Bonds Task: Provide me with all of the pertinent information on the following two bonds UConn (CUSIP: 914233W98) and Morgan Stanley (CUSIP: 61744 YAH1). This should include the full name, relevant dates (issued, maturity, callable), status (senior, junior, etc), terms (callable), any specified use of funds, and credit risk. (25 points). For the UConn bond, it may not be traded often so you can find relevant information on EMMA.msrb.org. For Morgan Stanley's bond you may want to sign up for guest access to a brokerage account (I've checked and it is on both Vanguard and Fidelity). Describe implicit taxes, who benefits from implicit taxes, and which bond bears them? Compute the implicit taxes on this transaction? (HINT: use yields) (10 points) In equilibrium these two bonds must yield the same after-tax rate of return. Therefore, what is the marginal bond investor's tax rate (hint: at what tax rate does an investor not get any tax benefit to buying either bond)? (10 points) Assume that there are two investors: one is retired and has a marginal tax rate of 15%, the other wealthy and has a marginal tax rate of 39.6%. Each investor can choose the corporate or municipal bond. Which investment does each take? Assume lach taxpayer invests $100,000, what are their after-tax rate of return on each investment (please show math). (25 points) Next assume that both investors are subject to a flat state tax rate of 6%. Does this impact their current decision? Without going through the math, briefly discuss at what marginal tax rates does including a state taxes impact the choice to invest in a corporate or municipal bond (versus being tax free at the state level)? (20 points) Write a one-two page letter to the wealthy client advising her which is a better investment and layout the two calculations in an easy to read format. Consider this client someone that does not know a lot about investing. Present the information in a natural way for them to "digest" the information (1.e., don't use terms most people aren't familiar with, overly complicated formulas, etc). This should look like something you would present to a client. You will be graded on getting the right answer, style, writing clarity, and overall presentations. If you would like more information on what I am looking for on presentability see blackboard post in Week 0. (60 points) Additionally, each of you please send me a grade of each of your group members' participation. I plan to keep this portion of the grade hidden from view until the end of the course. This ensures that there is no retaliation between members of a group. As outlined in the syllabus, if I see issues with shirking, I reserve the right to adjust the groups. (10 participation points) Case Study 1 - Municipal Bonds Task: Provide me with all of the pertinent information on the following two bonds UConn (CUSIP: 914233W98) and Morgan Stanley (CUSIP: 61744YAH1). This should include the full name, relevant dates (issued, maturity, callable), status (senior, junior, etc), terms (callable), any specified use of funds, and credit risk. (25 points). For the UConn bond, it may not be traded often so you can find relevant information on EMMA.msrb.org. For Morgan Stanley's bond you may want to sign up for guest access to a brokerage account (I've checked and it is on both Vanguard and Fidelity). Describe implicit taxes, who benefits from implicit taxes, and which bond bears them? Compute the implicit taxes on this transaction? (HINT: use yields) (10 points) In equilibrium these two bonds must yield the same after-tax rate of return. Therefore, what is the marginal bond investor's tax rate (hint: at what tax rate does an investor not get any tax benefit to buying either bond)? (10 points) Assume that there are two investors: one is retired and has a marginal tax rate of 15%, the other wealthy and has a marginal tax rate of 39.6%. Each investor can choose the corporate or municipal bond. Which investment does each take? Assume lach taxpayer invests $100,000, what are their after-tax rate of return on each investment (please show math) (25 points) Next assume that both investors are subject to a flat state tax rate of 6%. Does this impact their current decision? Without going through the math, briefly discuss at what marginal tax rates does including a state taxes impact the choice to invest in a corporate or municipal bond (versus being tax free at the state level)? (20 points) Write a one-two page letter to the wealthy client advising her which is a better investment and layout the two calculations in an easy to read format. Consider this client someone that does not know a lot about investing. Present the information in a natural way for them to "digest" the information (i.e., don't use terms most people aren't familiar with, overly complicated formulas, etc). This should look like something you would present to a client. You will be graded on getting the right answer, style, writing clarity, and overall presentations. If you would like more information on what I am looking for on presentability see blackboard post in Week O. (60 points)