June Tavia is trying to calculate the taxable equivalent yield for a municipal bond.If the bond she owns pays 5 percent interest and she is in the 22 percent tax bracket,what is the taxable-equivalent yield (round to nearest percent)?
A)4 percent
B)5 percent
C)6 percent
D)7 percent
E)8 percent

Question

Quizplus · Accepted Answer

The taxable equivalent yield is calculated as the tax-free yield divided by (1 - tax rate). So, for a 5% interest rate and a 22% tax bracket, the calculation is 5% / (1 - 0.22) = 5% / 0.78 = 6.41%, which rounds to 6 percent.

June Tavia Is Trying to Calculate the Taxable Equivalent Yield