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Question: A bondholder is subject to a tax of 50% on interest payments at the time interest is received, and a tax (or credit) of 25% on capital gains (or losses) when they are realized. Assume that the capital gain (or loss) on the bond is the difference between the purchase price and the sale price (or redemption amount if held to maturity), and the full amount of each coupon is regarded as interest. For each of the cases, find the nominal annual yield rates of

(a) 8%,

(b) 10% and

so that the stated yield is the after-tax yield (based on the bond being held to maturity).

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Category:- Basic Finance
Reference No.:- M92785926

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