if the investor rsquo s federal plus state tax rate on interest income is 38 and the 665565

Show that if yield to maturity increases, and then holding period return is less than initial yield. For example, suppose that by the end of the first year, the bond’s yield to maturity is 8.5%. Find the 1 year holding period returns and compare it to the bond’s initial 8% yield to maturity.

Suppose that the yield to maturity of the 4% coupon, 30 year maturity bond falls to 7% by the end of the first year and that the investor sells the bond after the first year. If the investor’s federal plus state tax rate on interest income is 38% and the combined tax rate on capital gains is 20%, what is the investor’s after tax rate of return?