An investor in the 34% tax bracket would be indifferent between a corporate bond with a before tax yield of 8% and a municipal bond with a yield of _________.

Name: An investor in the 34% tax bracket would be indifferent between a corporate bond with a before tax yield of 8% and a municipal bond with a yield of _________.
Brand: Quizplus
Rating: 4.8 (56 reviews)

Question

Quizplus · Accepted Answer

The after-tax yield of the corporate bond is 8% * (1 - 0.34) = 5.28%. The investor would be indifferent if the municipal bond, which is tax-free, also yields 5.28%.

An Investor in the 34% Tax Bracket Would Be Indifferent