In: Finance
Sara Nixon is looking for a fixed-income investment. She is considering two bond issues:
a. A Treasury with a yield of 5%
b. An in-state municipal bond with a yield of 4% Sara is in the 33% federal tax bracket and the 8% state tax bracket.
Calculate a) Treasury taxable equivalent yield and b) Muni taxable equivalent yield.
Which bond would provide Sara with a higher tax-adjusted yield?