To calculate the taxable equivalent yield on a municipal bond:
A)divide your tax rate by the result of 1.0 minus your tax-exempt rate
B)multiply your tax rate by your tax-exempt rate of return
C)divide your tax rate by your tax-exempt rate of return
D)divide the tax-exempt rate of return by your tax rate
E)divide the tax-exempt rate of return by the result of 1.0 minus your tax rate

Question

Quizplus · Accepted Answer

The taxable equivalent yield on a municipal bond is calculated by dividing the tax-exempt rate of return by the result of 1.0 minus your tax rate. This formula adjusts the yield on a tax-exempt bond to make it comparable to taxable yields, taking into account the investor's tax rate.

To Calculate the Taxable Equivalent Yield on a Municipal Bond