Question

A municipal bond carries a coupon rate of 6.50% and is trading at par. What would be the equivalent taxable yield of this bond to a taxpayer in a 40% combined tax bracket? (Round your answer to 2 decimal places.)

Answer 1

Answer:

the equivalent taxable yield of this bond to a taxpayer in a 40% combined tax bracket is 10.83%

Explanation:

The computation of the  equivalent taxable yield of this bond to a taxpayer in a 40% combined tax bracket is shown below:

equivalent taxable yield is

= 6.50% ÷ (1 - 0.40)

= 10.83%

Hence, the equivalent taxable yield of this bond to a taxpayer in a 40% combined tax bracket is 10.83%