Homework Help: Finance

Posted by Shan on Monday, February 7, 2011 at 12:10pm.

Corporate bonds issued by Johnson Corporation currently yield 8.5%. Municipal bonds of equal risk currently yield 6%. At what tax rate would an investor be indifferent between these two bonds? Round your answer to two decimal places.

The answer I keep coming up with is incorrect. I use this formula: 8.5(1-.06)=7.99, but when i work the homework problem in the book I get a different answer.

Finance - mipi, Sunday, December 18, 2011 at 5:00am
Bond Yield Example Data
A B

1 FV 1000
2 Annual Coupon Rate 7.5%
3 Annual Return 5.5%
4 Years to Maturity 14
5 Years 1
6 Payment Frequency 1
7 Value of Bond 1191.79

PUT THIS IN EXCEL AND YOU HAVE A CALCULATOR

VALUE OF BOND=
=-PV(B4/B7,B5*B7,B3/B7*B2,B2)

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