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Find the Equivalent Before-tax Interest Rate

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The interest rate on municipal bonds is given and suppose an investor pays a tax rate of "x" on interest income. What is the minimum interest rate that the investor would accept on corporate debt of equal risk?

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Solution Summary

Given an after-tax interest rate, this solution illustrates how to compute an equivalent before-tax interest rate.

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Because the municipal bond is tax-free (i.e., the investor pays no income tax on the interest income), we need to find ...

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