2. Which of the following is a reason why zero-coupon bonds are the best way for high-income taxpayers to extract maximum value from tax-exempt state and local government bonds? a.The investments pay interest continually. b.The interest earned on the accumulated principal and interest is not tax-exempt.
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2. Which of the following is a reason why zero-coupon bonds are the best way for high-income taxpayers to extract maximum value from tax-exempt state and local government bonds?
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- 7. Zero-coupon bonds are the best way for high-income taxpayers to extract maximum value from tax-exempt state and local government bonds because: a.Zero-coupon bonds are sold for nearly their full face value and provide most of their income in the form of interest. b.Zero-coupon bonds allow the investor to make additional tax-exempt investments. c.The interest earned on the accumulated principal and interest is not tax-exempt. d.The investments pay interest continually. e.Zero-coupon bonds include more transaction fees.2. Which statement is not correct? a) Municipal bonds tend to have a lower yield than Treasuries b) Municipal bonds tend to have a lower rating than Treasuries c) Municipal bonds are "risk free" securities d) Municipal bonds are an interesting investment from a tax perspectiveIdentify the following as either an advantage or a disadvantage of bond financing for a company. a. Bonds do not affect owner control. b. A company earns a lower return with borrowed funds than it pays in interest. c. A company earns a higher return with borrowed funds than it pays in interest. d. Bonds require payment of periodic interest. e. Interest on bonds is tax deductible. f. Bonds require payment of par value at maturity.
- Which of the following is incorrect about debt financing? A. Debt financing always generates excess returns which benefits equity investors b. One benefit of debt financing is that interest on most debt is fixed c. One benefit of debt financing is that interest is a tax deductible expense d. It increases financial leverageWhat will happen to the price of bonds, quantity of bonds and interest rate if bonds become riskier than stocks and the government starts spending more than their tax revenue? Show this on a graph.Zero coupon bonds: O a. create annual taxable income to individual bondholders. O b. create a tax deduction for the issuer only at maturity. O care issued only by the U.S. Treasury. O d. are issued at a premium. O e. are valued using simple interest.
- An investor seeking relatively low default risk investments combined with some type of favorable tax treatment and inflation protection should consider which of the following?(1) Insured municipal bonds. (2) TIPS. (3) Zero coupon Treasury bonds. (4) Series I savings bonds. (5) Series HH savings bonds. a. 1, 2 and 3. b. 1, 2 and 4. c. 2 and 4. d. 2, 4 and 5.STRIPS are: a) Government-backed schemes that allow investors to hedge against market risk. b) Government bonds linked to inflation rates. c) Tax-free saving accounts aimed at increasing retirement income d) Corporate bondsWhy do most municipal bonds pay lower interest than riskless Treasury bonds?
- Select the correct statement: The value of a premium bond will fall over time, if cost of debt (rd) decreases The value of a discount bond will fall over time, if cost of debt (rd) does not change The value of a discount bond will increase ove time, if cost of debt (rd) does not change The value of a premium bond will increase over time, if cost of debt (rd) does not changeThese are corporate bonds that have a higher rate of return with a higher level of risk? Group of answer choices Revenue bonds Junk bonds GOBs Tax increment bonds1. Which of the following is not a way in which banks lend short-term unsecured loans? Choices: By sending the amount earned from trust and investment products offered by the bank Through a guaranteed credit line that has a commitment fee for any unused amount for the year Through credits cards lines with a certain credit limit By lending a single date maturity loan to a debtor 2. The following are methods of acquiring funds through long-term financing, except Choices: Issuing bonds with semi-annual coupon payment at a discounted price Selling equity securities at an amount above the par value indicated in the stock certificate Issuing a note that indicates a promise to pay the indicated supplier in a future date Selling equity securities with a characteristic of both debt and equity security 3. Which is false about long-term sources of a firm's capital? Choices: Preferred shares are securities whose intrinsic value is based on prospective earnings All types of…