Question

An investor is in a 30% tax bracket. If corporate bonds offer 9% yields, what yield (in percentage points) must municipals offer for the investor to prefer them to corporate bonds

Answer 1

Answer:

6.3%

Explanation:

Calculation for what yield (in percentage points) must municipals offer

Using this formula

Yield=Corporate bonds yield×(1-Tax rate)

Let plug in the formula

Yield=0.09 x (1 - 0.30)

Yield= 0.063 ×100

Yield=6.3%

Therefore the yield that municipals must offer for the investor to prefer them to corporate bonds is 6.3%