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Problem 14-31 A Newly Issued Bond Pays Its Coupons Once Annually. Its Coupon Rate Is 5.5%, Its Matur

Problem 14-31 A newly issued bond pays its coupons once annually. Its coupon rate is 5.5%, its maturity is 20 years, and its yield to maturity is 8.5%. a. Find the holding-period return for a 1-year investment period if the bond is selling at a yield to maturity of 7.5% by the end of the year. (Do not round intermediate calculations. Round your answer to 2 decimal places.) Holding-period return 19.51 % b. If you sell the bond after one year, what taxes will you owe if the tax rate on interest income is 40% and the tax rate on capital gains income is 30%? The bond is subject to original-issue discount tax treatment. (Do not round intermediate calculations. Round your answers to 2 decimal places.) Tax on interest income Tax on capital gain Total taxes 1 $ $ $ 24.35 23.65 48.00 c. What is the after-tax holding-period return on the bond? (Do not round intermediate calculations. Round your answer to 2 decimal places.) After-tax holding-period return? 12.81 %
d. Find the realized compound yield before taxes for a 2-year holding period, assuming that (1) you sell the bond after two years, (2) the bond yield is 7.5% at the end of the second year, and (3) the coupon can be reinvested for one year at a 3% interest rate. (Do not round intermediate calculations. Round your answer to 2 decimal places.) Realized compound yield before taxes e. Use the tax rates in (b) above to compute the after-tax 2-year realized compound yield. Remember to take account of OID tax rules. (Do not round intermediate calculations. Round your answer to 2 decimal places.) After-tax 2-year realized compound yield %