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[answered] Bond Investments Assignment You must grasp many different c


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Bond Investments Assignment

 

You must grasp many different concepts and understand how bonds work in

 

order to master bond investments. Determining how to calculate the return on

 

your bond investment is also critical.

 

On page 467-469 of the text, prepare written answers to Problems 1-4. Complete

 

the Financial Advisor?s Investment Case.

 

No plagiarism and explain how you got the answers. PROBLEMS

 

1. Bell Corp. issues a bond with the following features:

 

Principal

 

$1,000

 

Coupon

 

0%

 

Maturity

 

5 years The current interest rate on comparable debt is 7 percent, so the bond initially sells for

 

$713. What is the accrued interest on the bond for each of the next five years?

 

2.

 

You purchase a 6 percent $10,000 bond for $9,180 plus $156 in accrued interest

 

for a total outlay of $9,336. Subsequently you receive a $300 interest payment. You are in

 

the 20 percent income tax bracket. How much tax do you owe on the interest payment?

 

3.

 

You sell a 6 percent $10,000 bond for $9,180 plus $156 in accrued interest for a

 

total of $9,336. Soon thereafter the company makes a $300 interest payment. You are in the

 

20 percent income tax bracket.

 

a) How much tax do you owe on the interest? b) Compare your answers for Problems 2 and 3. Why do they differ? 4.

 

Molly Matters Inc. issues a split-coupon $1,000 bond that matures in seven years.

 

Interest payments are $80 a year (8 percent) and start after three years have lapsed. The

 

bond initially sells for a discounted price of $794. a)

 

You are in the 30 percent income tax bracket and purchase the bond. What are the

 

annual taxes owed on the interest?

 

b)

 

You are in the 30 percent income tax bracket and purchase the bond in your IRA.

 

What are the annual taxes owed on the interest?

 

Textbook references: Mayo, Herbert B. (2013). Investments: An introduction (11th Ed.). South?

 

Western: Cengage Learning. ISBN: 9781305339262

 


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