A municipal bond you are considering as an investment currently pays a 6.80 perc
ID: 2699266 • Letter: A
Question
A municipal bond you are considering as an investment currently pays a 6.80 percent annual rate of return.
Calculate the tax equivalent rate of return if your marginal tax rate is 28 percent.
Calculate the tax equivalent rate of return if your marginal tax rate is 21 percent.
A municipal bond you are considering as an investment currently pays a 6.80 percent annual rate of return.
a.
Calculate the tax equivalent rate of return if your marginal tax rate is 28 percent.
Calculate the tax equivalent rate of return if your marginal tax rate is 21 percent.
Explanation / Answer
tax equivalent rate of return = annual rate / (1-tax rate) = 6.80%/(1-0.28) = 9.44%
b) tax equivalent rate of return = 6.80%/(1-0.21) = 8.608%