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Suppose that short-term municipal bonds currently offer yields of 4%, while comparable taxable bonds pay 5%. Which gives you the higher after-tax yield if your tax bracket is 30%

User EgzonArifi
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1 Answer

12 votes

Answer:

30%

Step-by-step explanation:

The computation of the after tax yield of the taxable bond in the case when the tax bracket is 30%

= rate × (1 - tax rate)

= 5% × (1 - 0.30)

= 5% × 0.70

= 3.50%

As we can see that the short term municipal bond is 4%

So this tax bracket should be chosen as the short term municipal bond gives higher after tax yield

User Sodimel
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