A tax-exempt bond is priced to yield 6.25%. If you are in the 28% tax bracket this bond would provide you with an equivalent taxable yield of ________.
A)4.50%
B)7.25%
C)8.68%
D)none of the answers given are correct

Question

Quizplus · Accepted Answer

To find the equivalent taxable yield, we need to divide the tax-exempt yield by (100% - tax bracket rate). Therefore, the equivalent taxable yield is 6.25% / (1 - 0.28) = 8.68%. The answer is C.

A Tax-Exempt Bond Is Priced to Yield 6