A client in the 33 percent marginal tax bracket is comparing a municipal bond that offers a 5 percent yield to maturity and a similar-risk corporate bond that offers a 6.25 percent yield.Which bond will give the client more profit after taxes?

Question

Quizplus · Accepted Answer

First determine the ETY:
Equivalent taxable yield = 11ea8218_29c9_ac53_bbd8_196ebf1f1eac_TB1326_11 = 11ea8218_29c9_ac54_bbd8_d727d60df668_TB1326_11 = 7.46%
Since 7.46% > 6.25%, the client should take the municipal bond.

A Client in the 33 Percent Marginal Tax Bracket Is