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# Bond Values and Yields Issued by City

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Describe or define and discuss a bond issued by a city that is having a little bit of a problem with creditworthiness (but not "junk" level yet) and how it is differentiated from other bonds. Then explain how valuing bonds is done and how interest rates affect their value. Consider the importance of the yield-to-maturity (YTM) in your discussion response.

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These bonds interest me because they (their interest and if you sell them or they mature), often do not become taxed at the state level from which they are bought. Also the income one gets from interest is usually federally tax free as well. Also, a lot of these having been paying higher yields now (especially compared to CDS and other ways of acquiring income), and some, even without their tax advantages pay a higher interest rate than their corporate counter-parts, and unlike federally issued bonds, their interest are usually not taxed in the state at the state level where they are from. Also, these are generally a lesser ...

#### Solution Summary

I describe, define and discuss a bond issued by a city that is having a little bit of a problem with creditworthiness (but not "junk" level yet) and how it is differentiated from other bonds. Then I explained how valuing bonds is done and how interest rates affect their value. Consideration to the importance of the yield-to-maturity (YTM) is provided in my discussion response.

\$2.19

## Bond Questions - On September 20, 1996, you bought \$60,000 face value of 9% semiannual US Treasury Bonds due on May 15, 2009 at 106% of par.

Assume today is May 16, 2003. On September 20, 1996, you bought \$60,000 face value of 9% semiannual US Treasury Bonds due on May 15, 2009 at 106% of par. The bond was originally issued with a 25 year maturity in 1984. How much accrued interest did you pay when you bought the bond? If the market demands 4% for 6 - year Treasuries today, how much should your bond be worth today?

If you sold the bond today, how much of a capital gain or loss (if any) would you expect to see on your original investment?

A second semi-annual bond, issued by General Motion, Inc matures in 15 years, has a 6% coupon, and sells at 92% of par. A third bond issued by the City of Portland, is selling at par, has a 4% coupon and matures in 3 years. What are the current yield and yield to maturity for these two bonds?

Your top marginal tax rates are 35% federally and 8% for the State of Maine. Which bond offers the best return currently, after taxes are considered? What other factors should go into your consideration?

Using financial Management theory, predict what you believe will happen to term structure and risk structure of interest rates over the coming year.

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