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sashaice [31]
3 years ago
14

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?
Business
1 answer:
Yuki888 [10]3 years ago
7 0

Answer:

0.063 or 6.3% (or more)

Explanation:

Given:

Combined Tax Bracket = 30% = 30/100 = 0.30

Yields of corporate Bonds = 9% = 9/100 = 0.09

Yield to Shift Investors to choose municipal bonds = ?

Calculation:

Yield from corporate bond = (After tax yield) x Yield rate of corporate Bonds

                                              = (0.70) x (0.09)

                                              = 0.063 or 6.3%

Working note:

After tax yield = (1 - tax rate )

After tax yield = (1 - 0.30 )

After tax yield = (0.70)

so, they must give 6.3% yield

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