Question

13.) An investor is in a 30% combined federal plus state tax bracket. If corporate bonds offer 6% yields, what yield must municipals offer for the investor to prefer them to corporate bonds

Answer 1

Answer:

the yield that must offer for the investor in order to prefer them is 4.2%

Explanation:

The computation is shown below:

The after tax yield is

= Corporate bond yield × (1 - tax rate)

= 6% × (1 - 0.30)

= 6% × 0.70

= 4.2%

hence, the yield that must offer for the investor in order to prefer them is 4.2%

The same is relevant