You are an investor in the 34% marginal tax bracket. You are looking to invest some...
You are an investor in the 34% marginal tax bracket. You are looking to invest some of your funds in a fixed income security. You see a Mecklenburg County municipal bond with a yield of 2.75%. The other bond you are considering is a Ford Motor Company corporate bond yielding 4.00%. On the basis of taxable equivalent yield, which bond would you choose?
Answers:
A. The municipal bond because its after-tax yield is higher
B. The municipal bond because its taxable equivalent yield is higher
C. The Ford bond because its after-tax yield is higher
D. The Ford bond because its taxable equivalent yield is higher
Homework Answers
municipal bond taxable equivalent yield
=2.75%/(1-34%)
=4.17%
because municipal bond is usually a tax free bond
Ford bond taxable equivalent yield
=4.00%
so I will choose municipal bond as taxable equivalent yield of 4.17% is higher than Ford bond
answer:B. The municipal bond because its taxable equivalent yield is higher
the above is answer..
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