For a taxpayer in the 25% marginal tax bracket,a 20-year municipal bond currently yielding 5.5% would offer an equivalent taxable yield of:
A) 7.33%.
B) 10.75%.
C) 5.5%.
D) 4.125%.
E) 6.45%.

Question

Quizplus · Accepted Answer

To calculate the equivalent taxable yield, we need to use the formula:
Equivalent Taxable Yield = Tax-Free Yield / (1 - Marginal Tax Rate)
In this case, the tax-free yield is 5.5% and the marginal tax rate is 25%. Plugging these values into the formula, we get:
Equivalent Taxable Yield = 5.5% / (1 - 0.25) = 7.33%
Therefore, choice A is the correct answer.

For a Taxpayer in the 25% Marginal Tax Bracket,a 20-Year