I was studying about bonds, more so accreted/coupon bonds that were discounted. As far as I know and believe to be true is that when a question says:
A.You need to take the $200 difference and divide it by 10 years to get $20. Mr. Dancer’s reported income would be $70 ($50 interest plus $20 accretion).
The % is the annual interest, but when I came across another question from somewhere else
2) Q. "A customer buys a 5% municipal bond with 10 years left to maturity in the secondary market priced at 90 to yield 6.32%. After taking taxes into consideration, the customer's yield will be:" I believe that the second one mentioned is wrong. Is that correct to say the second one is wrong? The answer for the second says this:
A. "The return on this bond has 2 components: the 5% coupon rate and the 1% annual earning of the discount (10 point discount accreted over 10 years = 1 point or 1% per year gain). While the 5% coupon is not taxed, the 1% annual gain is taxed as interest income received. For someone in the 30% tax bracket, .3% of the 1% annual gain goes to tax, and .7% of the return is kept after tax. Thus, the after tax return is about 5.7%. This is a very difficult question."
Do you see what I am saying: the first question says 5% corporate bond, the second question says 5% municipal bond, but the two different sources identify them as different things. I thought the percentage before the term bond is the annual interest like question 1 says.