Solutions Chapter 7

Solutions Chapter 7 - $.1895 Capital gain tax rate =...

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Solutions Chapter 7 3. (a) PV 950 FV 1000 n 10 PMT 25 %i 3.089% per 6 months YTM = 2 X 3.089 = 6.178% EAR = (1.0389) 2 - 1 = 6.273% (b) The coupon is taxed at 44%. The after-tax coupon is = $14 semi-annually. The capital gain of $1000 - $950 = $50 is taxable. Capital gains tax = (.50)($50)(.44) = $11.00. Proceed after taxes = $1000 - 11.00 = $989.00. PV 950 FV 989 n 10 PMT 14 %i 1.8512% semi-annually YTM = 2 X 1.8512 = 3.702% EAR = (1.018512) 2 - 1 = 3.74% 10. (a) (.5 + 1 + .2 + .3)/20 = .1 or 10% (b) i) return of capital is untaxed, so after-tax = $.5 Div tax rate = 1.25(.22) - .1667 + 1.25(.1482) - .0463 = .2473 After-tax dividend = (1 - .2473)($1) = $.7527 Interest tax rate = .22 + .1482 = .3682 After-tax interest = (1 - .3682)($.30) =
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Unformatted text preview: $.1895 Capital gain tax rate = .5(.3682) = .1841 After-tax capital gain = (1 - .1841)($.2) = $.1632 After-tax yield = (.5 + .7527 + .1895 + .1632)/20 = 1.6054/20 = 8.03% ii) return of capital is untaxed, so after-tax = $.5 Div tax rate = 1.25(.22) - .1667 + 1.25(.1667) - .0963 = .2204 After-tax dividend = (1 - .2204)($1) = .7796 Interest tax rate = .22 + .1667 = .3867 After-tax interest = (1 - .3867)($.30) = $.1840 Capital gain tax rate = .5(.3867) = .1934 After-tax capital gain = (1 - .1934)($.2) = $.1613 After-tax yield = (.5 + .7796 + .1894 + .1613)/20 = 1.6303/20 = 8.15%...
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Solutions Chapter 7 - $.1895 Capital gain tax rate =...

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