Finance assignment 4-1

Finance assignment 4-1 - Finance Assignment 4-1 Jamie...

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Finance Assignment 4-1 Jamie Hinson October 17, 2007 Treasury 10-year 4.554% Corporate: high-quality 10-year 4.70% Corporate: medium-quality 10-year 4.55% Municipal: (tax-exempt) 10-year 4.24% The table above shows today’s 10-year maturity yields on different types of credit markets. “With regard to capital market securities municipal bonds have the lowest before-tax yield, yet their after-tax yield is typically above that of Treasury bonds from the perspective of investors in high tax brackets. Treasury bonds are expected to offer the lowest yield because they are free from default risk and can easily be liquidated in the secondary market. Investors prefer municipal or corporate bonds over Treasury bonds only if the after-tax yield is sufficiently higher to compensate for default risk and a lower degree of liquidity. The assessment of yields could be applied to long-term securities. For example, a firm desires to issue a 20-year corporate
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