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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:
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?
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?
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?
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
This question was answered on: Sep 18, 2020
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