Final answer:
The tax equivalent yield for a municipal security offering an 8%
yield at a 30% tax rate is approximately 11.43%, but none of the provided answer choices are correct, as this option is not listed.
Step-by-step explanation:
The tax equivalent yield of a municipal security for a bank at a 30 percent tax rate when the investment offers an 8 percent yield can be calculated by dividing the tax-free yield by (1 minus the tax rate).
Therefore, the tax equivalent yield equals 0.08 / (1 - 0.30), which is 0.08 / 0.70 = approximately 0.1143 or 11.43%. The closest answer among the options given is (d) 8.00%, which is simply the yield before considering the tax rate.
It is important to note that the actual tax equivalent yield would be higher because the interest income from a municipal bond is typically exempt from federal taxes, which makes the after-tax return more attractive compared to taxable securities.
However, if we strictly look at the options provided by the question, none of them are technically correct, as they do not list 11.43%. To avoid confusion in this kind of question, ensure to provide all the possible correct choices for the answers.