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I am now confused so please figure this questions out for me. There is a hint for each part. An answer should be relying on
I am now confused so please figure this questions out for me. There is a hint for each part. An answer should be relying on the hint. Please explain it clearly for me. Thanks.
An investor is trying to decide between investing in one of two fixed income securities. One is subject to federal taxes, the other is not. The investor would invest an equal amount of money in either security. Security 1: A "near investment grade" Municipal Bond that will mature one year from today. The bond has a face value of $1,000 and will pay an (annual) coupon of 3% one year from today. The bond currently (today) sells for $1 * ,010 Security 2: A U.S. Treasury Bill that is currently selling for 99.25% of its face value. This security does not pay a coupon, but will pay 100% of its face value 175 days from today. Assume that the relevant federal tax rate is 20% (ignore state taxes). A. What is the before-tax and after-tax one-year yield offered by the municipal security? B. What is the before-tax and after-tax annualized yield offered by the Treasury Bill? C. Explain why a rational investor might choose to invest in this municipal security, rather than this U.S Treasury Bill. You should link this explanation back to the numbers you calculated in Parts A and B. D. Explain why a (different) rational investor might choose to invest in this U.S Treasury Bill, rather than this municipal security. You should link this explanation back to the numbers you calculated in Parts A and B
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