The yield on a tax-exempt bond:
A) equals the taxable bond yield times one minus the tax rate.
B) is equal to the yield on a U.S. 30-year bond.
C) is called the risk-free yield.
D) only applies to foreign bonds because they are exempt from U.S. income taxes.

Question

Quizplus · Accepted Answer

The yield on a tax-exempt bond equals the taxable bond yield times one minus the tax rate because tax-exempt bonds provide income that is exempt from federal or state income taxes, making their effective yield higher than a comparable taxable bond.

The Yield on a Tax-Exempt Bond