Question
Please show work with a little description of how you did it as i keep coming up with the wrong answer. Suppose that, holding yield
Please show work with a little description of how you did it as i keep coming up with the wrong answer.
Suppose that, holding yield constant, investors are indifferent as to whether they hold bonds issued by the federal government or bonds issued by state and local governments (that is, they consider the bonds the same with respect to default risk, information costs, and liquidity). Suppose that state governments have issued perpetuities (or consoles) with $85 coupons and that the federal government has also issued perpetuities with $85 coupons. If the state and federal perpetuities both have after-tax yields of 6%, what are their pre-tax yields? (Assume that the relevant federal income tax rate is 33.91%.)
The pre-tax yield on the state perpetuity will be _____(Round your response to two decimal places.) right answer is 6%
The pre-tax yield on the federal perpetuity will be____(Round your response to two decimal places.)right answer is 9.08%
Step by Step Solution
There are 3 Steps involved in it
Step: 1
Get Instant Access to Expert-Tailored Solutions
See step-by-step solutions with expert insights and AI powered tools for academic success
Step: 2
Step: 3
Ace Your Homework with AI
Get the answers you need in no time with our AI-driven, step-by-step assistance
Get Started