A bank currently owns a municipal bond paying a tax-exempt rate of 8%. If the banks marginal tax rate is 39%, what is the taxable equivalent yield?

Question

Quizplus · Accepted Answer

The formula to calculate taxable equivalent yield is:
Taxable Equivalent Yield = Tax-Exempt Yield / (1 - Marginal Tax Rate)
Substituting the given values, we get:
Taxable Equivalent Yield = 8% / (1 - 0.39) = 8% / 0.61 = 13.11%
Therefore, the taxable equivalent yield is 13.11%.

A Bank Currently Owns a Municipal Bond Paying a Tax-Exempt