difference in the yield to maturity
Go to calculators.aol.com/tools/aol/bond01/tool.fcs.
a. Assume the price you pay for a corporate bond is $9,500 for a $10,000 bond with a coupon rate of 5%, maturing in ten years. Your federal tax rate is 30% and your state tax rate is 6%. Assume that you will spend the interest received on the bond within two months of receiving it. What is your yield to maturity before taxes? After taxes?
b. Assume all the facts in “a” except that the bond will mature in five years. What is your yield to maturity before taxes? After taxes?
c. Discuss why you think there is such a difference in the yield to maturity when only the maturity of the bond has changed?