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 the yield of stock and the yield of a bond?

    Explore and understand the various meanings of the investment term "yield" as it is applied to equity investments and bond ... Read Answer >>
  2. Compute the offering price for a mutual fund with NAV of $1,200,000,000, an 8% front-end ...

    A. $1,304.35B. $1,200.00C. $1,196.35D. $1,296.00 Correct answer: A"B" is the bid price, not the offering price; "C" ... Read Answer >>
  3. Why should I keep records on my tax-exempt bond transactions?

    Keep your purchase records on all investments, including tax-exempt bonds. Though the interest is tax-free, you may owe taxes ... Read Answer >>
  4. How are municipal bonds taxed?

    Discover information about trading municipal bonds, specifically the various tax implications municipal bonds have at state ... Read Answer >>
  5. How can I find tax-exempt mutual funds?

    Learn about finding tax-free mutual funds at major investment firms, including how tax-free funds work and what you should ... Read Answer >>
  6. Below is an example of US Treasury yields for various maturities ...

    The correct answer is b. A normal yield curve chart shows long-term debt instruments having higher yields than short-term ... Read Answer >>
Related Articles
  1. Retirement

    Why Retirees Can't Count on Muni Bonds

    Interest may not be tax-exempt for seniors with Medicare or Social Security benefits.
  2. Managing Wealth

    Finding The Best Yields

    Using yields to supplement earnings can mean big bucks, with the right strategy.
  3. Investing

    Calculating Bond Equivalent Yield

    The bond equivalent yield calculates the semi-annual, quarterly or monthly yield on a discount bond or note.
  4. Investing

    Think Twice Before Buying Tax-Free Municipal Bonds

    Municipal bonds are relatively safe, tax-exempt securities--but they are not without drawbacks. Due diligence is required.
  5. Investing

    Calculating the Tax-Equivalent Yield

    Tax-equivalent yield is the pretax yield a taxable bond must possess for its yield to equal that of a tax-free municipal bond.
  6. Retirement

    Top Money-Saving Tax Strategies for Retirees

    Retirees that have a tax-efficient investing and distribution plan in place may be able to keep more of their hard-earned wealth.
  7. Investing

    Don't Trade Sloppy Patterns

    Trader and author Ed Ponsi explains how he deals with sloppy trading patterns and how to apply fundamentals to gain a clearer picture of the market action.
  8. Investing

    Calculating Capital Gains Yield

    Capital gains yield refers to a security’s appreciation or depreciation during the time it’s held.
  9. Investing

    Yield Investing: Dividend, Earnings And FCF

    There are numerous ways to value investments, and many investors prefer a specific valuation method. Yield investing is one way to value a stock by comparing the current price to various factors. ...
  10. Investing

    3 Well Rated Tax Exempt Bond Funds & Their Return

    Explore American Funds' mutual fund offering to identify three well-rated tax-exempt bond funds. Learn about risk-adjusted returns and fees of each fund.
RELATED TERMS
  1. Yield Equivalence

    The interest rate on a taxable security that would render a return ...
  2. Tax-Exempt Security

    A security in which the income produced is free from federal, ...
  3. After-Tax Basis

    A comparison of the net yields produced by taxable and tax-exempt ...
  4. Tax-Exempt Sector

    The market niche comprised of investment vehicles exempt from ...
  5. IRS Publication 557: Tax-Exempt Status for Your Organization

    A document published by the Internal Revenue Service (IRS) that ...
  6. 457 Plan

    A non-qualified, deferred compensation plan established by state ...
Hot Definitions
  1. Marginal Utility

    The additional satisfaction a consumer gains from consuming one more unit of a good or service. Marginal utility is an important ...
  2. Contango

    A situation where the futures price of a commodity is above the expected future spot price. Contango refers to a situation ...
  3. Stop-Loss Order

    An order placed with a broker to sell a security when it reaches a certain price. A stop-loss order is designed to limit ...
  4. Acid-Test Ratio

    A stringent indicator that indicates whether a firm has sufficient short-term assets to cover its immediate liabilities. ...
  5. Floating Exchange Rate

    A country's exchange rate regime where its currency is set by the foreign-exchange market through supply and demand for that ...
  6. Taxes

    An involuntary fee levied on corporations or individuals that is enforced by a level of government in order to finance government ...
Trading Center