You can buy a municipal bond to yield 10%.If you have a marginal tax rate of 28%,the bond's pre-tax yield equivalent is 13.89%.

Question

Quizplus · Accepted Answer

This is true. To calculate the pre-tax yield equivalent of a bond, you need to divide the tax-exempt yield by (1 - your marginal tax rate). In this case, if the bond yields 10% tax-exempt, then the pre-tax yield equivalent would be 10% / (1 - 0.28) = 13.89%.

You Can Buy a Municipal Bond to Yield 10