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You have the opportunity to buy a zero coupon municipal bond that will pay you $1000 in three years. The current market yield to maturity on this bond is 4.7%. What price should you pay for the bond today? What will the bond be worth a year from today assuming the market yield to maturity remains at 4.7%? Given that in the 45 percent combined federal and state tax rate, what is your tax-equivalent yield on the bond? In other words, what rate would a zero coupon taxable bond to yield before taxes if it were to have a 4.7 percent after-tax yield?

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Financial Management, Finance

Category:- Financial Management
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