You Purchased a Zero-Coupon Bond That Has a Face Value

question 54

Essay

You purchased a zero-coupon bond that has a face value of $1,000, five years to maturity, and a yield to maturity of 7.3%.It is one year later and similar bonds are offering a yield to maturity of 8.1%.You will sell the bond now.You have a tax rate of 40% on regular income and 15% on capital gains.Calculate the following for this bond.
• The purchase price of the bond
• The current price of the bond
• The imputed interest income
• The capital gain (or loss) on the bond
• The before-tax rate of return on this investment
• The after-tax rate of return on this investment

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