1. Suppose your company needs to raise 100 million and you want to issue 30-year bonds for this purpose. Assume the required return on your bond issue will be 5%, and you’re evaluating two issue alternatives: a 5% annual coupon and a zero coupon bond. Your company’s tax rate is 35 percent. In 30 years, what will your company’s repayment be if you issue the coupon bond? What if you issue the zero? (Assume annual compounding on the zero coupon bond).
A. $100,000,000, $231,380,000
B. $105,000,000, $231,380,000
C. $100,000,000, $115,505,000
D. $105,000,000, $432,195,000
E. $100,000,000, $612,438,000
2. Which one of the following scenarios provides the best opportunity for a financial planner to appropriately advise a client to invest in municipal bonds?
A. The client has fallen on hard times and is well below the poverty level
B. The client is in the top marginal tax bracket
C. The client is retired and living off social security
D. The client just started their first job
E. The client is a tax-exempt charity