You are in the 30% tax bracket (federal & state taxes combined). A corporate bond is yielding 9%. Assuming that all non-tax features (e.g. risk) are identical, what yield would a municipal bond ("Muni") have to offer in order for you to prefer it over the corporate?

You are in the 30% tax bracket (federal & state taxes combined). A corporate bond is yielding 9%. Assuming that all non-tax features (e.g. risk) are identical, what yield would a municipal bond ("Muni") have to offer in order for you to prefer it over the corporate?

Financial Management: Theory & Practice

16th Edition

ISBN:9781337909730

Author:Brigham

Publisher:Brigham

Chapter2: Financial Statements, Cash Flow,and Taxes

Section: Chapter Questions

Problem 12MC

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Question

1. You are in the 30% tax bracket (federal & state taxes combined). A corporate bond is yielding 9%.
Assuming that all non-tax features (e.g. risk) are identical, what yield would a municipal bond
("Muni") have to offer in order for you to prefer it over the corporate?

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