Explore BrainMass

After-tax yield: Municipal vs. Corporate Bonds

This content was COPIED from BrainMass.com - View the original, and get the already-completed solution here!

Corporate bonds issued by Johnson Healthcare currently yield 8 percent.
a. If an investor is in the 34 percent tax bracket, what is the bond's after-tax yield?
b. Municipal bonds of equal risk currently yield 6 percent. At what tax rate would an investor be indifferent between these two bonds?
c. Which bond should an investor in the 34 percent tax bracket invest in?

© BrainMass Inc. brainmass.com March 22, 2019, 2:56 am ad1c9bdddf

Solution Preview

Question A
After-tax yield = Yield*(1-tax rate) =8%*(1-34%) = 5.28%

Question B
Indifference rate level = Municipal bond ...

Solution Summary

This solution provides calculations for after-tax yield and tax rates.