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An investor is in the 28% federal tax bracket, pays a 9% state tax rate and...

An investor is in the 28% federal tax bracket, pays a 9% state tax rate and 4% in local income taxes. For this investor a municipal bond paying 6% interest is eqivalent to a corporate bond interest
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Answer #1

Municipal bonds are tax exempt from taxes.

Equivalent corporate bond rate = Municipal rate / (1 - taxes)

= 6% / (1 - 28% - 9% - 4%)

= 10.17%

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