Question

Personal After-Tax Yield Corporate bonds issued by Johnson Corporation currently yield 9.5%. Municipal bonds of equal risk currently yield 6%. At what tax rate would an investor be indifferent between these two bonds? Round your answer to two decimal places. 010

Answer 1

Tax exempt interest rate municipal bonds=   6.00%
Taxable ínterest rate on corporate bonds=   9.50%
  
exempt interest provided by Municipal bonds=  
=Taxable interest rate*(1-tax rate)  
6% = 9.5%*(1-tax rate)  
1-tax rate = 6%/9.5%  
1-tax rate=   0.63158
tax rate = 1-0.63158  
0.36842   or
36.84%  

So tax rate should be   36.84%
to be indifferent between bonds  

Note : separate first question is Answered as HOMEWORKLIB policy