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ohaa [14]
3 years ago
7

The Lancaster State Bank is thinking about purchasing a corporate bond that pays a coupon of 8.5%. The bank has a marginal tax r

ate of 25%. What is the after-tax yield on this bond?
Business
2 answers:
Ann [662]3 years ago
8 0

Answer:

The after tax yield is 6.375%

Explanation:

The after tax yield is the amount of coupon rate after the tax deduction which will be calculated by this formula:

ATY= i(1- tax Rate)

ATY is the after tax yield

i is the coupon interest rate which is 8.5%

tax rate is the marginal tax which will be adjusted on the rate given to give us the after tax yield so we substitute on the above formula:

ATY = 8.5%(1 - 25%) then we compute on calculator

ATY= 6.375% which is the after tax yield of this bond.

thereafter you get the percentage yield which is the yield of a coupon adjusted for tax.

stealth61 [152]3 years ago
5 0

Answer: 6.375%

Explanation:

The Lancaster State Bank is thinking about purchasing a corporate bond that has a yield of 8.5%. This bank has a marginal tax rate of 25%.

The after-tax yield on this bond would be 6.375%

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About how many people in the u.s. claim arab ancestry?
jenyasd209 [6]

About three million people in the u.s. claim Arab ancestry

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4 0
2 years ago
Dave gets a job at a grocery store, which pays him an hourly wage in exchange for his labor. Dave is participating in __________
Slav-nsk [51]

Answer:

The factor market

Explanation:

The factor market refers to buying and selling of factors of production. Factors of production are land, labor, capital, entrepreneurship. Prices of factors of production are determined by interaction of supply and demand forces. By Dave offering his labor, he receives wages as a reward for the factor of production he provides i.e. labor.

3 0
3 years ago
When identifying the sources of ineffective performance, managers often: a. ignore external conditions an employee faces. b. ign
AlekseyPX

Answer:

Correct option is D

When identifying the sources of ineffective performance, managers often <u>attribute poor performance to a lack of ability of individual performers.</u>

Explanation:

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6 0
3 years ago
Avicorp has a $15.5 million debt issue outstanding, with a 6.3% coupon rate. The debt has semi-annual coupons, the next coupon i
Studentka2010 [4]

Answer:

a) Pre-tax cost of debt is 8.45%

b) After tax cost of debt is 5.07%

Explanation:

a) Given:

Debt issue outstanding = $15.5 million

Semi-annual coupon rate = 0.063 / 2 = 0.0315

Assumed par value (FV) = $1,000

Coupon payment (pmt) = 0.0315 × 1000 = $31.5

Current bond price (PV) = 92% of $1,000 = $920

Time period (nper) = 5 × 2 = 10 periods

Calculate semi-annual rate using  spreadsheet function =Rate(nper,pmt,PV,FV)

Semi-annual rate = 4.14%

Pmt and FV are negative as they are cash outflows.

YTM = 4.14 × 2 = 8.28%

Effective annual rate = (1+\frac{Rate}{compounding\ periods}) ^{2} -1

                                   = (1+\frac{0.0828}{2}) ^{2} -1

                                   = 0.0845 or 8.45%

b) Tax rate is 40%

After tax cost of debt = Pre tax cost of debt × (1 - 0.4)

                                    = 0.0845 × 0.6

                                    = 0.0507 or 5.07%

4 0
3 years ago
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