Suppose that a bank currently owns a $ 5 million par value Treasury bond, purchased at par, with four years remaining to maturity that pays $ 200,000 in interest every six months Its current market value is $ 5 23 million If the bank sold the bond and reinvested the proceeds in a similar maturity t...

Sale of the bond produces 523 million 34023 million 5151800 This bond pays an ...

Suppose that a bank currently owns a $ 5 million par value Treasury bond, purchased at par,

Question:

Suppose that a bank currently owns a $ 5 million Treasury bond, purchased at par, with four years remaining to that pays $ 200,000 in interest every six months. Its current market value is $ 5.23 million. If the bank sold the bond and reinvested the proceeds in a similar taxable security, it could earn 6.6 percent annually. Determine the incremental cash- flow effects for the bank if it sold the Treasury note and reinvested the full after tax proceeds from the sale in a 6.6 percent three- year taxable security, assuming a 34 percent tax rate.
Maturity
Maturity is the date on which the life of a transaction or financial instrument ends, after which it must either be renewed, or it will cease to exist. The term is commonly used for deposits, foreign exchange spot, and forward transactions, interest... Par Value
Par value is the face value of a bond. Par value is important for a bond or fixed-income instrument because it determines its maturity value as well as the dollar value of coupon payments. The market price of a bond may be above or below par,...