Question

June Tavia is trying to calculate the taxable equivalent yield for a municipal bond. If the bond she owns pays 4.5 percent interest and she is in the 25 percent tax bracket, what is the taxable-equivalent yield?

Answer 1

Answer:

The taxable equivalent yield is 6%.

Step-by-step explanation:

The formula for the taxable equivalent yield is:

$TEY = \frac{tax free bond }{(1-Tax rate)}\\ TEY = \frac{0.045 }{(1-0.25)}\\TEY = 0.06\\TEY = 6$%