Answer:
a) 17.53%
b) $41 x 40% = $ 16.40
     815.25 - 728.48 = 86.77 capital gain x 30% = $ 26.03
Total: 26.03 + 16.40 = $ 42.43 income tax expense
c) (815.25 + 41 - 42.43) / 728.48 - 1 = 0.1171425 = 11.71%
d) 
we recalculate the price of the bond with 13 years left to maturity
holding period return 26.94%
e) 
tax expense:
(41x1.02 + 41) x 0.4 = 33.14
(841.87 - 728.48) x 0.3 = 34.02
<u>tax expense:</u> 67.16
<u>after tax return:</u>
(841.87 + 41x1.021 + 41 - 67.16) /728.48 - 1 = 0.177209379 = 17.72%
Explanation:
We need to determinate the value of the bond at yield of 7.1% and at yield of 6.1% which is the sum of the present value of the maturity and coupon payment:
<u>Purchase price:</u>
 
 
Coupon payment = 1,000 x 0.041 =	41.00 
time	15 years
rate	0.071
 
 
PV	$371.0773 
  
  
 Maturity   1,000.00 
 time   15.00 
 rate  0.071
  
  
 PV   357.40 
 
PV c  $   371.0773 
PV m	<u> $  357.4028 </u>
Total  $  728.4801 
<u>Selling Price</u>
 
 
C	41.00
time      14 (one-year past so maturity is more closer)
rate	0.061
 
 
PV	$378.7456 
 
  
  
 Maturity   1,000.00 
 time   14.00 
 rate  0.061
  
  
 PV   436.50 
 
PV c	$378.7456 
PV m  $436.5004 
Total	$815.2460 
<em><u>Holding period return:</u></em>
return / investment - 1 
(815.25 + 41) / 728.48 - 1 = 0.175387059 = 17.53%
d) 
we recalculate the price of the bond with 13 years left to maturity
 
 
C	41.00
time	14
rate	0.061
 
 
PV	$378.7456 
 
  
  
 Maturity   1,000.00 
 time   13.00 
 rate  0.061
  
  
 PV   463.13 
 
PV c	$378.7456 
PV m  $463.1269 
Total	$841.8725 
and redo the return, tax and after-tax return:
(841.87 + 41x1.021 + 41) /728.48 - 1 = 0.269401333