A client in the 35 percent marginal tax bracket is comparing a municipal bond that offers a 4.25 percent yield to maturity and a similar-risk corporate bond that offers a 5.10 percent yield.Which bond will give the client more profit after taxes?

Question

Quizplus · Accepted Answer

First determine the ETY:
Equivalent taxable yield = 11ea8218_29ca_96b7_bbd8_3fd62284c01a_TB1326_11 = 11ea8218_29ca_bdc8_bbd8_97f608bbaa1c_TB1326_11 = 6.54%
Since 6.54% > 5.1%, the client should take the municipal bond.

A Client in the 35 Percent Marginal Tax Bracket Is