The supply of loanable funds is upward sloping if the ________ the interest rate, the ________ the share of their incomes that h
1 answer:
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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