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A bond issued by the state of Alabama is priced to yield 6.40%. If you are in the 30% tax bracket, this bond would provide you with an equivalent taxable yield of _________.

Respuesta :

Tundexi

Answer:

9.14%

Explanation:

Tax exempt yield = 6.40% = 0.064

Marginal tax rate = 30% = 0.30

Equivalent taxable yield = Tax exempt yield / (1 - marginal tax rate)  

Equivalent taxable yield = 0.064 / (1 - 0.30)

Equivalent taxable yield = 0.064 / 0.70

Equivalent taxable yield = 0.0914286

Equivalent taxable yield = 9.14%

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