2206 AFE Tutorial answers 8
Week 11
Answers
Chapter 17
Problem 1 (p.680)
Assuming all other relevant factors are equal, the corporate bond carrying an 8
percent coupon and selling at par offers a better return than a 5 1/2 percent municipal
bond (with an equivalent tax yield of 7.639 percent).
Problem 2 (p.680)
2(a).
Present Value = Future Value x Present Value Factor
PV = $1,000 x .17411 = $174.11
where .17411 is the present value factor for 6% interest (12% annually/2
interest payments per year) for 30 semiannual periods (15 years x 2 interest
payments per year)
2(b).
PV = $1,000 x .14205 = $142.05
where .14205 is the present value factor for 5% interest (semiannually) for 40
semiannual periods.
Problem 3 (p.681)
3(a).
For the 15% tax bracket
3(b).
For the 25% tax bracket
3(c).
For the 35% tax bracket
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.
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.
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 Three '08
 AlexandrAkimov
 present value factor, semiannual periods

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