A corporate bond is yielding 6.9 percent and a municipal bond is yielding 4.8 percent. What is the critical marginal tax rate?

Question

Quizplus · Accepted Answer

The critical marginal tax rate is the rate at which the after-tax yield of the corporate bond equals the yield of the municipal bond. It can be calculated using the formula: 1 - (municipal yield / corporate yield). Here, it is 1 - (4.8% / 6.9%) = 30%.

A Corporate Bond Is Yielding 6