In: Finance
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% |
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.
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