A municipal bond carries a 6.5% and is trading at par. To an investor in the 33% tax bracket, the bond would provide a taxable equivalent yield of

Name: A municipal bond carries a 6.5% and is trading at par. To an investor in the 33% tax bracket, the bond would provide a taxable equivalent yield of
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Question

A municipal bond carries a 6.5% and is trading at par.  To an investor in the 33% tax bracket, the bond would provide a taxable equivalent yield of

Quizplus · Accepted Answer

The taxable equivalent yield is calculated as the tax-free yield divided by (1 - tax rate). For a 6.5% yield and a 33% tax bracket, the calculation is 6.5% / (1 - 0.33) = 9.70%.

A Municipal Bond Carries a 6