Question

Assume you are in the 35 percent tax bracket and purchase a municipal bond with a yield of 5.50 percent. Use the formula presented in chapter 11 of your textbook to calculate the taxable equivalent yield for this investment. (Do not round intermediate calculations. Enter your answer as a percent rounded to 2 decimal places.)

Answer 1

8.46%

Step-by-step explanation:

Calculation for the the taxable equivalent yield for this investment

Using this formula

Taxable equivalent yield

=Tax-exempt yield / (1 − Your tax rate)

Let plug in the formula

Taxable equivalent yield=0.055 / (1 - 0.35)

Taxable equivalent yield=0.055/0.65

Taxable equivalent yield=0.0846*100

Taxable equivalent yield= 8.46%

Therefore the taxable equivalent yield for this investment is 8.46%