A newly issued bondpays its coupons once a year. Its coupon rate is 5.6%, its maturityis 20 years, and its yield to maturity is 8.6%.

a. Find the holding-period return for a one-yearinvestment period if the bond is selling at a yield to maturity of7.6% by the end of the year. (Do not round intermediatecalculations. Round your answer to 2 decimal places.)

Holding-period return           %

b. Ifyou sell the bond after one year when its yield is 7.6%, what taxeswill you owe if the tax rate on interest income is 40% and the taxrate on capital gains income is 30%? The bond is subject tooriginal-issue discount (OID) tax treatment. (Do not roundintermediate calculations. Round your answers to 2 decimalplaces.)

Tax on interestincome	$
Tax on capitalgain	$
Total taxes	$

c.What is the after-tax holding-period return on the bond?(Do not round intermediate calculations. Round your answerto 2 decimal places.)

After-tax holding-period return           %

d.Find the realized compound yield before taxes for atwo-year holding period, assuming that (i) you sell the bond aftertwo years, (ii) the bond yield is 7.6% at the end of the secondyear, and (iii) the coupon can be reinvested for one year at a 3.6%interest rate. (Do not round intermediate calculations.Round your answer to 2 decimal places.)

Realized compound yield before taxes           %

e.Use the tax rates in part (b) to compute theafter-tax two-year realized compound yield. Remember totake account of OID tax rules. (Do not round intermediatecalculations. Round your answer to 2 decimal places.)

After-tax two-yearrealized compound yield           %