M & B 4th Edition by Dean Croushore

Exercise 16

If capital gains are taxed at a lower rate than interest income, would the determination of yields to maturity be affected? Consider the case in which a change in the market interest rate has occurred in an early year in the life of a bond, after which the market interest rate remains constant. You are considering two bonds: a used one with a capital gain or loss versus a new one paying interest at the market rate. Would it matter for your decision about which bond to buy whether the market interest rate today was lower or higher than the original interest rate on your bond?