CHAPTER 17 PROBLEMS

FINANCE  Investment Analysis and Portfolio Management CHAPTER 17 PROBLEMS
1 An   investor   in   the   28   percent   tax   bracket   is   trying   to   decide   which   of   two   bonds   to   purchase. One is a corporate bond carrying an 8 percent coupon and selling at par. The   other is a municipal bond with a 5.5 percent coupon, and it, too, sells at par. Assuming   all other relevant factors are equal, which bond should the investor select? 



  2.   What   would   be   the   initial   offering   price   for   the   following   bonds   (assume   semiannual   compounding)  ：     
 a. A 15-year zero coupon bond with a yield to maturity (YTM) of 12 percent.  
 b. A 20-year zero coupon bond with a YTM of 10 percent. 


3.  An 8.4 percent coupon bond issued by the state of Indiana sells for $1.000. What coupon   rate   on   a   corporate   bond selling   at   its   $1,000   par   value would produce   the   same   after-tax   return to the investor as the municipal bond if the investor is in     
    a. the 15 percent marginal tax bracket?     
    b. the 25 percent marginal tax bracket?   
      c. the 35 percent marginal tax bracket?   ETY=i/(1-t) 



   4. The Shamrock Corporation has just issued a $1,000 par value zero coupon bond with an 8   percent   yield   to   maturity,   due   to   mature   15   years   from   today   (assume   semiannual   compounding)  
   a. What is the market price of the bond?   
      b. If interest rates remain constant, what will be the price ot the bond in three years?    
     c. If interest rates rise to 10 percent, what will be the price of the bond in three years?