Products & RisksPregunta 9 de 125
An investor in the 32% federal tax bracket is comparing a 4% municipal bond with a taxable corporate bond. What taxable-equivalent yield must the corporate bond offer to match the municipal?
a.4.00%
b.5.28%
c.2.72%
d.5.88%
Explicación
Taxable-equivalent yield equals the municipal yield divided by (1 minus the tax rate): 4% / (1 - 0.32) = 4% / 0.68 = 5.88%. A taxable bond must yield about 5.88% to give the same after-tax return as the 4% municipal.
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