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ST municipal bond yield
Taxable bond yield
Solution
After-Tax Yield = Rate on the Taxable Bond x (1 － Tax Rate)
Tax bracket
After tax yield on
taxable bond
Higher yield
Suppose that short-term municipal bonds currently offer yields of 4%,
while comparable taxable bonds pay 5%. Which gives you the higher
after-tax yield?
Close
Net Chg
Div
Yield
PE
Funds
Solution
a. Yesterday's closing price = -$
Turn to Figure 2.8 (listed below) and look at the listing for General
Dynamics.
a. What was the firm’s closing price yesterday?
b. How many shares could you buy for $5,000?
c. What would be your annual dividend income from those shares?
d. What must be General Dynamics’ earnings per share?
Strike Last Volume Last Volume
August
August
August
Solution
a. Gross profit -$
Cost of options -$
Net Profit -$
Call
Put
August stock price
Turn back to Figure 2.10 (listed below) and look at the Apple options.
Suppose you buy an October expiration call option with exercise price
$100.
a. If the stock price in October is $102, will you exercise your call? What
are the profit and rate of return on your position?
b. What if you had bought the October call with exercise price $95?
c. What if you had bought an October put with exercise price $100?
Dividend
Tax bracket
Solution
Before tax income -$
Find the after-tax return to a corporation that buys a
share of preferred stock at $40, sells it at year-end at
$40, and receives a $4 year-end dividend. The firm is in
the 30% tax bracket.
Preferred stock purchase price
Preferred stock sales price
