A bond issued by the State of Pennsylvania provides a 9% yield.What yield on a Synthetic Chemical Company bond would cause the two bonds to provide the same after-tax rate of return to an investor in the 35% tax bracket?

Question

Quizplus · Accepted Answer

The after-tax yield on the Pennsylvania bond is 9% * (1 - 35%) = 5.85%. To provide the same after-tax rate of return, the Synthetic Chemical Company bond must have a yield of 5.85% / (1 - 35%) = 13.85%.

A Bond Issued by the State of Pennsylvania Provides a 9