An investor lives in Sacramento, CA.
She is in the 28% Federal income tax bracket, and the 9.5% state
income tax bracket.
She is considering investing in one of the bonds below:
U.S. Treasury bonds yielding 4.2%
Boston, MA municipal bonds yielding 3.1 %
iii City of Dixon, CA municipal bonds yielding 3.0%
iv. Corporate bonds yielding 5.2%
Rank these, from highest to lowest, in terms of their after-tax yield for this investor.
i, iv, iii, ii
iii, i, ii, iv
iv, i, ii, iii
None of the above.
Glenn just received a letter from Halo Corporation, informing him that his current holdings of Halo bonds
will be called soon for a call price of $1050.
He originally purchased the bonds for their par value of $1000
How will he likely react to this letter?
a. He'll be pleased, since the call price is above what he originally paid for the bonds.
@He'li be upset, since the bonds' present value if they were not called is likely more than $1050.
c. He'll be indifferent, since the bond call price is equal to their present value today.
Connemara Products has assets that originally cost $20 million.
These assets have been depreciated by
$8 million during the firm's existence, and they could be liquidated today for $9 million.
The firm has $5
million in liabilities, has 1,000,000 shares of common stock outstanding, and the current stock price is
What do you conclude?
The firm's book value is $12 million.
The firm's liquidation value is $5 million.
Connemara Products appears to be a going concern.
All of the above.
None of the above.
Which of the following bonds would have the shortest duration, for a given discount rate
15 year bond with 4% coupon rate, semiannual payments and par
15 year bond with 6% coupon rate, semiannual payments and par
15 year zero-coupon bond with par = $1000
all the above bonds would have the same duration.