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Calculating the Tax Rate of Corporate Bonds

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Corporate bonds issued by Johnson Corporation currently yield 8%. Municipal bonds of equal risk currently yield 4.5%. At what tax rate would an investor be indifferent between these two bonds? Round your answer to two decimal places.

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Solution Summary

The solution depicts the steps to calculate the tax rate at which an investor would be indifferent between the two given bonds.

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Let the tax rate be T
Effective yield in case of Corporate ...

Solution provided by:
Lokesh Jain, MSc
Education
  • BEng (Hons) , Birla Institute of Technology and Science, India
  • MSc (Hons) , Birla Institute of Technology and Science, India
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