Homework Answers
Tax exempt interest rate municipal bonds=
6.00%
Taxable ínterest rate on corporate bonds= 9.50%
exempt interest provided by Municipal bonds=
=Taxable interest rate*(1-tax rate)
6% = 9.5%*(1-tax rate)
1-tax rate = 6%/9.5%
1-tax rate= 0.63158
tax rate = 1-0.63158
0.36842 or
36.84%
So tax rate should be 36.84%
to be indifferent between bonds
Note : separate first question is Answered as HOMEWORKLIB policy
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