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riadik2000 [5.3K]
3 years ago
5

A municipal bond has yield to maturity of 4.83 percent. An investor with a marginal tax rate of 35 percent is indifferent betwee

n this municipal bond and an otherwise identical taxable corporate bond. What is the yield to maturity of the corporate bond
Business
1 answer:
mezya [45]3 years ago
3 0

Answer: 7.43%

Explanation:

The yield to maturity simply refers to the total return that is expected on a bond as long as the bond is held till it matures.

In this case, since the investor is indifferent between this municipal bond and an otherwise identical taxable corporate bond, the yield to maturity of the corporate bond will be:

4.83% = Corporate bond YTM × ( 1- 35%)

4.83% = Corporate bond YTM × 65%

Corporate bond YTM = 4.83% / 65%

Corporate bond YTM = 0.0483/0.65

Corporate bond YTM = 7.43%

The yield to maturity of the corporate bond is 7.43%

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Differential analysis for 1 year

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sales revenue                  191,000                191,000               0

depreciation expense     -4,840                  -22,760               -17,920

per year

direct materials                -65,200               -65,200               0

direct labor                       -45,300               -15,100                 30,200

power and                        -4,200                 -7,200                  -3,000

maintenance

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total                                   24,660               30,440                  5,780

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sales revenue                  955,000              955,000             0

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per year

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direct labor                       -226,500            -75,500               151,000

power and                        -21,000               -36,000               -15,000

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To know more about; Why is perfect competition the best form of market structure?, here

brainly.com/question/4190313

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