A 5.5%, 20-year municipal bond is currently priced to yield 7.2%. For a taxpayer in the 33% marginal tax bracket, this bond would offer an equivalent taxable yield of
A) 8.46%.
B) 10.75%.
C) 12.40%.
D) 3.58%.

Question

Quizplus · Accepted Answer

The equivalent taxable yield is calculated by dividing the tax-exempt yield by (1 - tax rate). Here, it's 7.2% / (1 - 0.33) = 10.75%.

A 55%, 20-Year Municipal Bond Is Currently Priced to Yield 7