30: Computer Graded Unit 9: Lesson 1: LS Assignment 2

What will your after-tax you'll be on a corporation bond that is currently priced to yield 7% if you are in the 25% tax bracket?

(yield) X (1 - tax rate) .07 X (1 - .25) .07 X .75= 5.25

Which of these correctly identify differences between Treasury bonds and corporate bonds?

-Treasury bonds are issued by the US government will corporate bonds are issued by corporations. -Treasury bonds offered to certain tax benefits to investors the corporate bonds cannot offer. -Treasury bonds are free of default risk while corporate bonds are exposed to default risk.

Name two features of municipal bonds:

1. They are exempt from federal taxes 2. They are issued by state and local government's 3. The interest on municipal bonds is, in some cases exempt from state taxes in the state of issue

What are the cash flows involved in the purchase of 5 year zero coupon bond that has a par value of $1,000 if the current price is $800? Assume the market rate of interest is 5%?

Pay $800 today and receive $1000 at the end of 5 years

In event of default, who gets paid first

Senority

As a general rule, which of the following are true of debt and equity?

The maximum reward for owning debt is fixed Equity represents an ownership interest

The US government borrows money by issuing:

Treasury bonds treasury notes

Most of the time, a floating-rate bond's coupon adjusts ___.

With a lag to some base rate

a provision in the bond indenture giving the issuing company the option to repurchase the bonds before maturity is termed

call provision

a debenture is a bond secured with collateral

false

equity represents an ____ interest of a firm

ownership