A bond issued by the State of Alabama is priced to yield 6.25%.If you are in the 28% tax bracket this bond would provide you with an equivalent taxable yield of _________.
A) 4.50%
B) 7.25%
C) 8.68%
D) none of the above

Question

Quizplus · Accepted Answer

To calculate the equivalent taxable yield, we use the formula:
Equivalent Taxable Yield = Tax-free Yield / (1 - Tax Rate)
Thus, the equivalent taxable yield for this bond would be:
6.25% / (1 - 0.28) = 8.68%
Therefore, the answer is choice C.

A Bond Issued by the State of Alabama Is Priced