Taxable Equivalent Yield What's the taxable equivalent yield on a municipal bond with a yield to maturity of 4.5 percent for an investor in the 39 percent marginal tax bracket?
A) 1.76%
B) 4.50%
C) 7.38%
D) 11.54%

Question

Quizplus · Accepted Answer

To calculate the taxable equivalent yield, we need to divide the municipal bond's yield to maturity by the complement of the marginal tax rate (1 - 0.39 = 0.61) as follows:
Taxable equivalent yield = 4.5% / (1 - 0.39) = 7.38%
Therefore, the taxable equivalent yield for an investor in the 39% marginal tax bracket is 7.38%.

Taxable Equivalent Yield What's the Taxable Equivalent Yield on a Municipal