Question-1
Bell Corp. issues a bond with the following features:
Principal $ 1,000
Coupon 0%
Maturity 5 years
The current interest rate on comparable debt is 7 percent, so the bond initially sells for $ 713. What is the accrued interest on the bond for each of the next five years?
Question-2
You purchase a 6 percent $10,000 bond for $9,180 plus $156 in accrued interest for a total outlay of $9,336. Subsequently you receive a $300 interest payment. You are in the 20 percent income tax bracket. How much tax do you owe on the interest payment?
Question-3
You sell a 6 percent $10,000 bond for $9,180 plus $156 in accrued interest for a total of $9,336. Soon thereafter the company makes a $300 interest payment. You are in the 20percent income tax bracket.
A. How much tax do you owe on the interest?
B. Compare your answer for problems 2 and. Why do they differ?
Question-4
Molly Matters Inc. issues a split- coupon $ 1,000 bond that matures in seven years. ¬Interest payments are $ 80 a year ( 8 percent) and start after three years have lapsed. The bond initially sells for a discounted price of $ 794.
a) You are in the 30 percent income tax bracket and purchase the bond. What are the annual taxes owed on the interest?
b) You are in the 30 percent income tax bracket and purchase the bond in your IRA. What are the annual taxes owed on the interest?
Answer will be sent by email as attachment.
