An investor is in the 36% tax bracket and holds municipal bonds with an 8% yield-to-maturity. What is the equivalent taxable yield?

By Peter Cherewyk AAA
A:

A. 8.0%

B. 22.2%

C. 9.3%

D. 12.5%






Correct answer: D

"A" divides 1-minus-tax-rate by the tax-exempt yield, instead of vice versa, and the sloppy mathematician will not notice the order-of-magnitude problem and will read "8" as "8%". "B" divides the tax-exempt yield by the tax rate, not 1-minus-tax-rate. "C" is just a guess.



RELATED FAQS

  1. What is the difference between a debenture and a bond?

    Learn how to differentiate between debentures and bonds, two types of debt securities that can be issued by a government ...
  2. How long can I hold my HH/H Bonds and still earn interest?

    Take advantage of your bond investment and learn how long you can hold on to your Series H/HH Bonds and still earn interest ...
  3. How long will it take for a bond to reach its face value?

    Learn when different savings bonds reach face value, and determine the best time to cash them in to get the highest return ...
  4. How do I sign up for a TreasuryDirect account?

    Invest in Treasury securities by dealing directly with the U.S. Department of the Treasury online, conveniently managing ...
RELATED TERMS
  1. Treasury Yield

    The return on investment, expressed as a percentage, on the debt ...
  2. Series I Bond

    A non-marketable, interest-bearing U.S. government savings bond ...
  3. Safe Haven

    An investment that is expected to retain its value or even increase ...
  4. Bond Resolution

    1. A document used with government bonds, especially general ...
  5. Fully Taxable Equivalent Yield

    The yield on a municipal bond, when the effect of reduced taxes ...
  6. Operation Twist

    The name given to a Federal Reserve monetary policy operation ...

You May Also Like

Related Articles
  1. Stock Analysis

    Government Bond ETFs: Pros and Cons

  2. Investing Basics

    CDs or Bonds: Which Investment is Better ...

  3. Bonds & Fixed Income

    Interested In West African Debt? Look ...

  4. Taxes

    10 Sources Of Nontaxable Income

  5. Insurance

    Municipal Bond Tips For The Series 7 ...

Trading Center