Suzette owns a corporate bond with a yield to maturity of 7.45 percent.She is in the 12 percent tax bracket.What is her equivalent rate of return on a municipal bond? Ignore state taxes.

Question

Quizplus · Accepted Answer

To find the equivalent rate of return on a municipal bond for Suzette, who is in the 12 percent tax bracket, you use the formula: Equivalent Tax-Free Yield = Corporate Bond Yield * (1 - Tax Rate). Plugging in Suzette's details: 7.45% * (1 - 0.12) = 7.45% * 0.88 = 6.556%. Rounded to two decimal places, this gives an equivalent rate of return of 6.56 percent.

Suzette Owns a Corporate Bond with a Yield to Maturity