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. 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 ...
  2. 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 ...
  3. 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 ...
  4. What is the difference between EE and I Bonds?

    Read about the similarities and differences between the EE and I savings bond programs created by the U.S. Department of ...
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 ...
Related Articles
  1. Taxes

    10 Sources Of Nontaxable Income

  2. Insurance

    Municipal Bond Tips For The Series 7 ...

  3. Inflation hasn’t been a problem for a while now, but with both key measures of inflation on the rise, now could be the time for investors to buy TIPS.
    Stock Analysis

    Is It Finally Time For TIPS?

  4. If your U.S. Savings Bonds are dated 1984 or earlier, they've reached maturity and stopped paying interest.
    Savings

    Time to Cash In Your U.S. Savings Bonds?

  5. To finance the budget deficit, the US government may seek to raise money by taking on debt, often by borrowing from the public.
    Bonds & Fixed Income

    A Look At National Debt And Government ...

Trading Center