Consider a newly issued 6% coupon bond with 15 years until maturity. The face value is $1000. The coupons are paid once per year and the bonds yield to maturity is 9%. The yield to maturity of the bond changes to 8.5% by the end of the year.

1. Find the holding-period return for a 1-year investment period.

Suppose the interest income tax rate is 38% and the tax rate on capital gains is 20%. The bond is subject to the original-issue discount tax treatment.

1. If you sell the bond after 1 year, how much taxes will you owe in total?
2. What is the after-tax holding-period return on the bond?