Question
PART A (8 marks) Recently, April purchased a bond for $23,150 that pays a 8% coupon, payable quarterly. The bond matures in 6 years at
PART A (8 marks)\ Recently, April purchased a bond for
$23,150
that pays a
8%
coupon, payable quarterly. The\ bond matures in 6 years at a par value of
$25,000
. She can reinvest the quarterly coupon at\
3.5%
compounded annually. Her salary is
$73,000
per year. Her marginal tax rate is
40%
, which\ is also the applicable tax rate on interest income. The tax rate on dividend income is
22%
and\ the tax rate on capital gain income is
20%
. HINT: The first 2 questions below are before-tax, the\ last one is after-tax.\ How much coupon income will April receive each quarter? Over 6 years? (2 marks)
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