Question

A tax-exempt municipal bond has a yield to maturity of 4.22%. An investor, who has a marginal tax rate of 33.00%, would prefer and an otherwise identical taxable corporate bond if it had a yield to maturity of more than ____%.

Answer 1

Answer:

yield to maturity of more than 6.29%

Explanation:

given data

maturity = 4.22% = 0.0422

marginal tax rate = 33.00% = 0.33

solution

as here we get the yield to maturity of corporate bonds when tax rate is 33%  that is

yield to maturity of corporate bonds = maturity ÷ ( 1- marginal tax rate )  ...............1

put here value and we will get

yield to maturity of corporate bond = $\frac{0.0422}{1-0.33}$  

yield to maturity of corporate bond = 0.062985

yield to maturity of corporate bond = 6.29 %