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sasho [114]
3 years ago
9

A municipal bond carries a coupon rate of 8.00% and is trading at par. What would be the equivalent taxable yield of this bond t

o a taxpayer in a 40% combined tax bracket? (Round your answer to 2 decimal places.)
Business
1 answer:
eduard3 years ago
3 0

Answer:

13.33%

Explanation:

The computation of the equivalent taxable yield is shown below:

Data provided in the question

Coupon rate = 8%

Combined tax bracket = 40%

So, the equivalent taxable yield by using the above information is

= (Coupon rate) ÷ (1 - tax rate)

= 8% ÷ 1 - 0.40

= 8% ÷ 0.60

= 13.33%

Basically we divide the coupon rate by the percentage after considering the tax rate

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