Question

A municipal bond is paying a 6% annual yield. An equivalent risk corporate bond is paying 7%. Investors with a tax rate of ____ or higher would prefer the municipal bond.

Answer 1

The correct answer is 25%

Step-by-step explanation:

To calculate the value of the tax rate to decide on the municipal bond, we must take the information of the annual yield minus the expenses associated with this product, on the interest of the corporate bond:

Tax Rate = 1 - (0.0525 / 0.0700) = 25%

In this way, 25% or more, is a percentage of the tax rate that can make them decide on the municipal bond option.