A client in the 25 percent marginal tax bracket is comparing a municipal bond that offers...
A client in the 25 percent marginal tax bracket is comparing a municipal bond that offers a 4.9 percent yield to maturity and a similar risk corporate bond that offers a yield of 6.65 percent. What is the equivalent taxable yield? Which bond will give the client more profit after taxes?
Homework Answers
equivalent taxable yield=municipal yield/(1-tax rate)
=4.9/(1-0.25)=6.53%(Approx).
Hence corporate bond will provide more profits after taxes having higher yield comparatively.
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