If a six- month Treasury bill is purchased for $ 0.9675 on a dollar ( i. e., $ 96,750 for a $ 100,000 bill), what is the discount yield, the annual rate of interest, and the compound rate? What will these yields be if the discount price falls to $ 0.94 on a dollar ( i. e., $ 94,000 for a $ 100,000 bill)? 2. An investor is in the 28 percent income tax bracket and can earn 3.3 percent on a non-taxable bond. What is the comparable yield on a taxable bond? If this same investor can earn 5.9 percent on a taxable bond, what must be the yield on a nontaxable bond so that the after- tax yields are equal? 3. An investor in the 35 percent tax bracket may purchase a corporate bond that is rated double B and is traded on the New York Stock Exchange ( the bond division). This bond yields 9.0 percent. The investor may also buy a double- B- rated municipal bond with a 5.85 percent yield. Why may the corporate bond be preferred? ( Assume that the terms of the bonds are the same.)
This question was answered on: May 23, 2022
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