John Smith is in the 28% tax bracket. If he were to purchase a $1,000 municipal bond that has a stated interest rate of 6.9%, what would the fully taxable equivalent yield be? (Round the answer to two decimal places.)
A) 6.90%
B) 8.26%
C) 9.58%
D) 12.11%
E) 14.63%

Question

Quizplus · Accepted Answer

The fully taxable equivalent yield is calculated by dividing the tax-free yield by (1 - tax rate). Here, it is 6.9% / (1 - 0.28) = 9.58%.

John Smith Is in the 28% Tax Bracket