Suppose currently 10-year Treasury bond yields 1.2% and 10-year municipal bond offers 0.8% yield. Also, your...

Suppose currently 10-year Treasury bond yields 1.2% and 10-year municipal bond offers 0.8% yield. Also, your federal income tax rate is 40% and state income tax rate is 14%. Calculate the risk premium (spread) of this municipal bond.

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Expert Solution

risk premium (spread) = 10-year municipal bond yield - 10-year Treasury bond yield = 0.8% - 1.2% = -0.4%

risk premium (spread) of this municipal bond is -0.4%.

jeff jeffy answered 2 years ago

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