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QUESTION
American Express (AMEX) bonds have a coupon of 6%, pay interest semiannually, have a face value of $1,000 and will mature after 8 years.
American Express (AMEX) bonds have a coupon of 6%, pay interest semiannually, have a face value of $1,000 and will mature after 8 years. Your income-tax rate for interest income is 35%, but only 15% on capital gains. You pay the taxes once a year. How much should you pay for an AMEX bond if your after-tax required rate of return is 7%?
