Taxes on zero coupon bond Answer: e Diff: M N
7A-145. A zero coupon bond with a face value of $1,000 matures in 15 years. The bond has a yield to maturity of 7 percent. If an investor buys the bond at the beginning of the year, how much money in taxes will the investor have to pay on the zero coupon bond the first year. Assume that the investor has a 25 percent marginal tax rate.
a. $5.25
b. $5.44
c. $5.99
d. $6.25
e. $6.34
Accrued value and interest expense Answer: a Diff: M
7A-146. Vogril Company issued 20-year, zero coupon bonds with an expected yield to maturity of 9 percent. The bonds have a par value of $1,000 and were sold for $178.43 each. What is the expected interest expense on these bonds for Year 8?
a. $29.35
b. $32.00
c. $90.00
d. $26.12
e. $25.79
Tough:
Zeros and expectations theory Answer: d Diff: T
7A-147. A 2-year, zero coupon Treasury bond with a maturity value of $1,000 has a price of $873.4387. A 1-year, zero coupon Treasury bond with a maturity value of $1,000 has a price of $938.9671. If the pure expectations theory is correct, for what price should 1-year, zero coupon Treasury bonds sell one year from now?
a. $798.89
b. $824.66
c. $852.28
d. $930.23
e. $989.11
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