A bond issued by the State of Pennsylvania provides a 4.00% yield. What yield on a...
A bond issued by the State of Pennsylvania provides a 4.00% yield. What yield on a Synthetic Chemical Company bond would cause the two bonds to provide the same after-tax rate of return to an investor in the 35% tax bracket? a. 6.28% b. 6.22% c. 5.48% d. 6.15% e. 4.80%
Homework Answers
Let the Yield of Synthetic Chemical Company bond for a yield of 4.00% be x%
4% = x% * ( 1- Tax rate)
4% = x% * ( 1-0.35)
x% = 4% / ( 1-0.35)
= 6.153846154%
= 6.15%
Hence the correct answer is d. 6.15%
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