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8_murik_8 [283]
2 years ago
12

An investor is in a 30% combined federal plus state tax bracket. If corporate bonds offer 9% yields, what yield must municipals

offer for the investor to prefer them to corporate bonds? (Round your answer to 1 decimal place.)
Business
1 answer:
Mkey [24]2 years ago
7 0

Answer:

after tax yield on corporate bonds  = 6.3 %

Explanation:

given data

federal plus state tax bracket = 30%

corporate bonds  yields = 9%

solution

we get here yield that must municipals offer for the investor is express as

after tax yield on corporate bonds = corporate bonds  yields × ( 1 - federal plus state tax bracket  )   ......................1

put here value and we will get

after tax yield on corporate bonds = 9% × ( 1 - 30% )

after tax yield on corporate bonds = 0.09 × ( 1 - 0.30 )

after tax yield on corporate bonds  = 0.063

after tax yield on corporate bonds  = 6.3 %

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