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54. TAXABLE EQUIVALENT YIELD Taxable equivalent yield mea- sures what you would have to earn on a taxable investment to match the yield provided by a tax-exempt municipal bond. Suppose that your total tax rate is T% and the stated interest rate on a tax-exempt bond is r%/year. Then the taxable equivalent yield, R%/year, is given by R 1- T a. Solve for r in terms of R and T. b. If your taxable return is 6%/year and your total tax rate is 20%, what rate of return on a tax-exempt secu- rity do you need to match the after-tax return on a tax- able security?

54. TAXABLE EQUIVALENT YIELD Taxable equivalent yield mea- sures what you would have to earn on a taxable investment to match the yield provided by a tax-exempt municipal bond. Suppose that your total tax rate is T% and the stated interest rate on a tax-exempt bond is r%/year. Then the taxable equivalent yield, R%/year, is given by R 1- T a. Solve for r in terms of R and T. b. If your taxable return is 6%/year and your total tax rate is 20%, what rate of return on a tax-exempt secu- rity do you need to match the after-tax return on a tax- able security?

Algebra and Trigonometry (6th Edition)
Algebra and Trigonometry (6th Edition)
6th Edition
ISBN:9780134463216
Author:Robert F. Blitzer
Publisher:Robert F. Blitzer
ChapterP: Prerequisites: Fundamental Concepts Of Algebra
Section: Chapter Questions
Problem 1MCCP: In Exercises 1-25, simplify the given expression or perform the indicated operation (and simplify,...
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54. TAXABLE EQUIVALENT YIELD Taxable equivalent yield mea- sures what you would have to earn on a taxable investment to match the yield provided by a tax-exempt municipal bond. Suppose that your total tax rate is 7% and the stated interest rate on a tax-exempt bond is r%/year. Then the taxable equivalent yield, R%/year, is given by R = r 1- T a. Solve for r in terms of R and T. b. If your taxable return is 6%/year and your total tax rate is 20%, what rate of return on a tax-exempt secu- rity do you need to match the after-tax return on a tax- able security?
Transcribed Image Text:54. TAXABLE EQUIVALENT YIELD Taxable equivalent yield mea- sures what you would have to earn on a taxable investment to match the yield provided by a tax-exempt municipal bond. Suppose that your total tax rate is 7% and the stated interest rate on a tax-exempt bond is r%/year. Then the taxable equivalent yield, R%/year, is given by R = r 1- T a. Solve for r in terms of R and T. b. If your taxable return is 6%/year and your total tax rate is 20%, what rate of return on a tax-exempt secu- rity do you need to match the after-tax return on a tax- able security?
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