You have a 1-year investment horizon. You are deciding on a 7.4% coupon bond that matures in 10 years. There is a 7.4% coupon rate and the bond pays the $74 coupon once per year.
At a 5% YTM, current price is:
7.4% coupon bond = $1185.32
You expect price to be $1170.59 one year from now.
Your pre-tax holding for the coupon bond is 5%.
If your tax bracket is 30% on ordinary income and 21.6% on capital gains income, what will be the after-tax rate of return on the bond?
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