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 are the differences between a treasury bond and a treasury note and a treasury ...

    Understand what types of securities the government issues, and learn the difference between Treasury notes, Treasury bonds ...
  2. How is face value used to determine taxation?

    Discover how the face value of a corporate debt security can directly impact the amount of taxes that the owner of the security ...
  3. What legal recourse do I have if the counterparty in a debenture agreement does not ...

    Understand the risks and benefits of debenture agreements, and what legal recourse you have should the other party fail to ...
  4. Can investments be consumed immediately?

    Learn about what immediate consumption means for assets. Find out how consumption impacts investing choices and planning ...
RELATED TERMS
  1. Bond

    A debt investment in which an investor loans money to an entity ...
  2. Treasury Yield

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

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

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

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

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

You May Also Like

Related Articles
  1. Stock Analysis

    Government Bond ETFs: Pros and Cons

  2. Bonds & Fixed Income

    Interested In West African Debt? Look ...

  3. Stock Analysis

    Is It Finally Time For TIPS?

Trading Center