Question

Taxable Equivalent Yield What's the taxable equivalent yield on a municipal bond with a yield to maturity of 4.25 percent for an investor in the 28 percent marginal tax bracket? (Round your answer to 2 decimal places.)

Answer 1

Answer: 5.90%

Explanation:

From the question, we are informed that we should calculate a taxable equivalent yield on a municipal bond with a yield to maturity of 4.25 percent for an investor in the 28 percent marginal tax bracket. This will be:

Taxable equivalent yield = Tax free municipal bond yield / 1 - Tax rate

= 4.25% / (1 - 28%)

= 0.0425 / (1 - 0.28)

= 0.0425 / 0.72

= 0.0590278

= 5.90%