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A 5-year corporate bond yields 8.00%. A 5-year municipal bond of equal risk yields 6.50%. Assume that the state tax rate is zero. At what federal tax rate are you indifferent between the two bonds? (Round your final answer to two decimal places.)

Respuesta :

Tundexi

Answer:

18.75%

Explanation:

Yield on corporate bonds = 8%

Yield on municipal bonds = 6.5%

Let Tax rate = t

To be indifferent between the two bonds:

6.5% = 8% / (1-t)

(1-t) = 6.5%/8%

-t = 0.8125 - 1

-t = -0.1875

t = 0.1875

t = 18.75%

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