Debt issued by Drumpt corporation currently yields 11%. A municipal bond of equal risk currently yields...

Debt issued by Drumpt corporation currently yields 11%. A municipal bond of equal risk currently yields 6%. At what marginal tax rate would an investor be indifferent between the two bonds? Please input the answer in decimal format.

Solutions

Expert Solution

Tax rate at which the investor would be indifferent:

Tax free yield = Taxable yield * (1 - Tax Rate)

6% = 11% * (1 - Tax Rate)

(1 - Tax Rate) = 0.5455

Tax Rate = 0.4545

Tax Rate = 45.45%

jeff jeffy answered 1 year ago

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