A municipal bond has a quoted yield of 5%.If an investor has a 20% marginal tax rate,the bond's pre-tax equivalent yield is

Name: A municipal bond has a quoted yield of 5%.If an investor has a 20% marginal tax rate,the bond's pre-tax equivalent yield is
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Question

Quizplus · Accepted Answer

To find the pre-tax equivalent yield, we need to adjust the yield for taxes.

Pre-tax equivalent yield = Municipal bond yield / (1 - Marginal tax rate)

Pre-tax equivalent yield = 5% / (1 - 0.20) = 6.25%

Therefore, the answer is C, 6.25%.

A Municipal Bond Has a Quoted Yield of 5