Answer:
18%
Explanation:
Lochemere is evaluating a taxable bond at 7%
= 7/100
= 0.07
The municipal bond is 5.75%
= 5.75/100
= 0.0575
Therefore the break even tax rate can be calculated as follows
Municipal bond = taxable bond × (1-tax rate)
0.0575= 0.07 × (1-t)
0.0575= 0.07(1-t)
1-t= 0.0575/0.07
1-t = 0.82
t= 1-0.82
t= 0.18×100
t= 18%
Hence the break-even tax rate is 18%
