The municipal bond currently offers yield of 8%, while a comparable taxable corporate bond pays 10%...

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The municipal bond currently offers yield of 8%, while a comparable taxable corporate bond pays 10% before-tax yield. 8) If you are in the tax bracket of 10%, (a) what is the after-tax yield on the taxable corporate bonds? (b) Which one gives you the higher after-tax yield? 9) If you are in the tax bracket of 30%, (a) what is the equivalent taxable yield of the municipal bond? (b) Based on your answer in part (a), which one would you prefer, a taxable corporate bond or a municipal bond? Why? 10) The coupon rate on a tax-exempt bond is 6.46%, and the rate on a taxable bond is 8.5%. Both bonds sell at par. What is the tax bracket (marginal tax rate) at which an investor would be indifferent between the two bonds. The municipal bond currently offers yield of 8%, while a comparable taxable corporate bond pays 10% before-tax yield. 8) If you are in the tax bracket of 10%, (a) what is the after-tax yield on the taxable corporate bonds? (b) Which one gives you the higher after-tax yield? 9) If you are in the tax bracket of 30%, (a) what is the equivalent taxable yield of the municipal bond? (b) Based on your answer in part (a), which one would you prefer, a taxable corporate bond or a municipal bond? Why? 10) The coupon rate on a tax-exempt bond is 6.46%, and the rate on a taxable bond is 8.5%. Both bonds sell at par. What is the tax bracket (marginal tax rate) at which an investor would be indifferent between the two bonds.

Answer rating: 100% (QA)

8 If you are in the tax bracket of 10 a The aftertax yield on the taxable corporate bonds can be cal... View the full answer