What is the equivalent tax-exempt bond yield for a taxable bond with an 8% yield and a bondholder in a 35% marginal tax rate? Explain.

What will be an ideal response?


5.20%. The tax-exempt bond yield = (Taxable bond yield) × (1 - tax rate). Substituting; The tax exempt bond yield = (8%) × (1 - 0.35) = 5.20%

Economics

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