Question

Find the equivalent taxable yield of the municipal bond for tax brackets of zero, 10%, 20%, and 30%, if it offers a yield of 4.50%

Answer 1

Answer and Explanation:

The computation of the equivalent taxable yield is shown below:

For zero = 4.50%

For 10% = 4.50 ÷ 0.90 = 5%

For 20% = 4.50 ÷ 0.80 = 5.625%

For 30% = 4.50 ÷ 0.70 = 6.43%

For 10%, for 20% and for 30% it would reduced the tax brackets by the same

like

for 10%

= 1 - 0.10

= 0.90

The Same applied for other ones

Therefore the above should be the answer