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Consider the decision to purchase either a 5-year corporate bond or a 5-year municipal bond. The corporate bond is a 12% annual coupon bond with
Consider the decision to purchase either a 5-year corporate bond or a 5-year municipal bond. The corporate bond is a 12% annual coupon bond with a par value of $1,000. It is currently yielding 11.5%. The municipal bond has an 8.5% annual coupon and a par value of $1,000. It is currently yielding 7%. Assume that for Corporate Bond your marginal tax rate is 35% and Municipal Bond is tax-free. Fill in the cells highlighted in Yellow. Marginal Tax Rate 35% Municipal Bond Corporate Bond Annual coupon rate % Annual coupon rate % Yield % Yield % Par Value Par Value Years Years Purchase Price Purchase Price After-tax Coupon Payment Calculated YTM After-tax Coupon Payment Calculated YTM
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