A City of Tempe muni bond has a yield of 3.4%.
1.What is the tax equivalent yield for an investor in the 25% tax bracket compared to an investor in the35% tax bracket?
2.What would you be willing to pay for a $1000 par, 6% coupon bond with 15years until maturity if you wanted to earn a return of 7%? What if you only needed to earn a return of 5%? What if you wanted to earn 6%?
3.If you purchase a $1000 par value bond for $1025 that has a 7 5/8% coupon rate and 15 years until maturity, what will your annual return be?
4.Built rite bonds have the following: 7½ % coupon, 14 years until maturity and are currently selling at $984.
a)If you purchase the above bond, what would be your AYTM?
b)If you want to make an 8% return, what would you be willing to pay?
c)Built rite sold 15 year, zero coupon bonds yielding 5%. What did they sell for?
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