Explore BrainMass

Explore BrainMass

    After-tax yield: Municipal vs. Corporate Bonds

    Not what you're looking for? Search our solutions OR ask your own Custom question.

    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 5, 2021, 1:31 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.