Question

A tax exempt municipal bond provides a yield of 3.2%. what is the equivalent taxable yield on the bond given a 35% tax bracket?

A. 3.2%
B. 3.68%
C. 4.92%
d. 5%

Answer 1

To find the equivalent taxable yield on the tax exempt municipal bond, subtract the tax-exempt yield from 1, multiply by the tax bracket, and subtract the result from 1.

Step-by-step explanation:

To find the equivalent taxable yield on the tax exempt municipal bond, we need to calculate the yield after taking into account the 35% tax bracket.

First, subtract the tax-exempt yield (3.2%) from 1 to get the taxable portion (1 - 0.032 = 0.968).

Next, multiply the taxable portion by the tax bracket (0.968 x 0.35 = 0.3388).

Finally, subtract the taxable portion from 1 to get the equivalent taxable yield (1 - 0.3388 = 0.6612, or 6.612%).