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What+is+the+tax+exempt+equivalent+yield+on+a+9%+bond+yield+given+a+marginal+tax+rate+of+28%?

Sagot :

The tax exempt yield is 12.5%.

We are given the rate of interest and marginal tax in the question. The interest rate is 9% and marginal tax rate is 28%.

The formula to calculate the tax exempt equivalent is as follows -

Tax exempt yield =  Interest rate ÷ (1 - your tax rate)

Keep the values in formula to find the value of tax exempt yield -

Tax exempt yield = 9% ÷ (1 - 28%)

Tax exempt yield = 0.09 ÷ (1 - 0.28)

Tax exempt yield = 0.09 ÷ 0.72

Tax exempt yield = 0.125

Calculating tax exempt yield in percentage is -

Tax exempt yield = 0.125*100

Tax exempt yield = 12.5%

Hence, the tax exempt yield is 12.5%.

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