Question

In: Finance

Suppose that you consider investing in a municipal bond issued by the Cleveland County or a...

Suppose that you consider investing in a municipal bond issued by the Cleveland County or a corporate bond. The municipal bond yields 5.75 percent per year. If you are in the 25 percent tax bracket, what is equivalent taxable yield on the municipal bond?

A

4.31%
B

5.75%
C

6.76%
D

7.67%

Solutions

Expert Solution

Information provided:

Yield on municipal bond= 5.75%

Tax rate= 25%

Equivalent taxable yield= Municipal bond yield/ (1 – tax rate)

                                              = 5.75%/ (1 – 0.25)

                                              = 5.75%/ 0.75

                                              = 7.6667% 7.67%.

Hence, the answer is option d.

In case of any query, kindly comment on the solution

jeff jeffy answered 3 months ago
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