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17 December, 06:59

A municipal bond has a YTM of 4.11 percent while the YTM of a comparable taxable bond is 6.16 percent. What is the tax rate that will make an investor indifferent between the municipal bond and the taxable bond

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  1. 17 December, 07:01
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    tax-rate 32.73%

    Explanation:

    The municipal bonds are tax-free thus, the private corporate bond is a pre-tax yield. We should solve for thetax rate which makes the 6.16% private bond yield 4.11% after tax:

    0.0611 x (1 - t) = 0.0411

    t = 1 - 0.0411/0.0611 = 0,32733224

    Being taxed at 32.73% will make the investor indifferent between these two options.
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Home » Business » A municipal bond has a YTM of 4.11 percent while the YTM of a comparable taxable bond is 6.16 percent. What is the tax rate that will make an investor indifferent between the municipal bond and the taxable bond
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