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AAFM GLO_CWM_LVL_1 Exam - Topic 1 Question 84 Discussion

You are considering investing in following bond:Your income tax rate is 34 percent and your capital gains tax is effectively 10 percent. Capital gains taxes are paid at the time of maturity on the difference between the purchase price and par value. What is your approximate post-tax yield to maturity on this bond?
C) 9.07%
A) 10.91%
B) 11.38%
D) 11.78%

AAFM GLO_CWM_LVL_1 Exam - Topic 1 Question 84 Discussion

Actual exam question for AAFM's GLO_CWM_LVL_1 exam
Question #: 84
Topic #: 1
[All GLO_CWM_LVL_1 Questions]

You are considering investing in following bond:

Your income tax rate is 34 percent and your capital gains tax is effectively 10 percent. Capital gains taxes are paid at the time of maturity on the difference between the purchase price and par value. What is your approximate post-tax yield to maturity on this bond?

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Suggested Answer: C

by Theodora at Jul 07, 2024, 08:52 PM

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Vivan
6 months ago
With a 34% income tax, the yield will definitely drop significantly.
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Paz
7 months ago
Not sure about this one, sounds too good to be true.
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Jess
7 months ago
Wait, capital gains tax is only 10%? That seems low!
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Jose
7 months ago
I think the post-tax yield will be lower than that.
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Delila
7 months ago
The bond has a yield of 11.78% before taxes.
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Talia
8 months ago
I think the post-tax yield will be lower than the nominal yield due to the taxes, but I can't recall if it's closer to 10.91% or 11.38%.
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Romana
8 months ago
I feel like I might have mixed up the tax rates in my head. Was the capital gains tax supposed to be applied to the entire yield or just the gains?
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Micaela
8 months ago
This question seems similar to one we practiced where we had to account for both income and capital gains taxes. I think I might lean towards option B.
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Suzi
8 months ago
I remember we discussed how to calculate post-tax yield, but I'm a bit unsure about the exact formula to apply here.
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Amber
8 months ago
This seems straightforward enough. I just need to plug the numbers into the right formula and do the math. As long as I don't make any silly mistakes, I should be able to get the right answer.
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Jacklyn
8 months ago
Okay, I think I've got this. I'll need to calculate the after-tax coupon payments and the after-tax capital gain at maturity, then combine them to find the overall yield.
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Carri
8 months ago
Hmm, I'm a bit unsure about how to approach this. I'll need to review the formulas for calculating yield to maturity and remember to account for the tax implications.
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Teddy
8 months ago
This looks like a tricky bond yield calculation problem. I'll need to carefully consider the impact of the income tax rate and capital gains tax on the overall yield.
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Elena
8 months ago
Whoa, this is a lot of information to process. I better take my time and make sure I understand all the details before trying to solve this. The tax rates are going to be key here.
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Kristel
8 months ago
This looks like a tricky one. I'll need to carefully review the requirements and think through the options.
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Izetta
8 months ago
This one seems pretty straightforward. I'm pretty sure the answer is B - shared secret.
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Georgiann
9 months ago
Don't overthink it. They want to know the premium amount after permanent disability in the third year. Looks like it'll be NIL.
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Phillip
1 year ago
This bond better be made of solid gold at those yields. Time to consult my financial advisor... and my crystal ball.
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Clay
1 year ago
Wait, is this a trick question? I feel like I'm about to fall into a tax-themed trap.
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Devon
12 months ago
Dierdre: Exactly. It's all about calculating the after-tax return on investment.
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Dierdre
12 months ago
User 2: So, we need to consider both income tax rate and capital gains tax rate, right?
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Chantell
1 year ago
User 1: Don't worry, it's not a trick question. Just need to calculate the post-tax yield to maturity.
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Tresa
1 year ago
Ah, the joys of tax calculations. Guess I should've paid more attention in that finance class!
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Emelda
1 year ago
C) 9.07%
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Omer
1 year ago
B) 11.38%
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Salena
1 year ago
A) 10.91%
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Dyan
1 year ago
11.78%? That seems suspiciously high. I'll double-check my work to make sure I'm not missing anything.
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Maurine
1 year ago
This question is tricky! Gotta remember to factor in both income tax and capital gains tax. Time to break out the calculator.
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Delisa
12 months ago
I'm leaning towards B) 11.38%
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Lashanda
12 months ago
B) 11.38%
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Lizbeth
1 year ago
I think it's A) 10.91%
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Gussie
1 year ago
B) 11.38%
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Mendy
1 year ago
A) 10.91%
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Ellen
1 year ago
I think it's A) 10.91%
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Raylene
1 year ago
A) 10.91%
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Jeanice
1 year ago
But don't forget to consider the taxes, it might affect the post-tax yield
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Remona
1 year ago
I disagree, I believe the correct answer is D) 11.78%
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Jeanice
1 year ago
I think the answer is A) 10.91%
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