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MCS,PHD
Argosy University/ Phoniex University/
Nov-2005 - Oct-2011
Professor
Phoniex University
Oct-2001 - Nov-2016
Some aspects of the tax status of a return from a bond may cause the yield to maturity to be an inaccurate measure of an investor’s return from owning the bond. Suppose that Bob owns a bond that was issued nine years ago and has one year left to maturity. The bond has a yield to maturity of 7%, with a current yield of 3% and an expected capital gain of 4%. Suppose that Juanita owns a bond that is a newly issued oneyear bond with a yield to maturity of 8%. If you are an investor with a 33% tax rate on interest income but a 0% tax rate on capital gains, which bond would you prefer to own? Briefly explain.
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