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If corporate bonds issued by Johnson Corporation currently yield 8 Municipal bonds of equal risk currently yield 6 At what tax rate would an investor be indifferent between these two bonds?
Wiki User
∙ 12y ago
To find the federal tax rate at which the buyer would be indifferent between Muni bonds(which are tax free) and Corporate bonds(which fall under your tax bracket tax rate) you follow this simple formula: Corporate Bond Yield=(Municipal bond Yield)/(1- Federal tax rate) In this case you would solve for the Federal Tax Rate and get an answer of .25 or 25% http://luhman.org/Nts/Bond/140_Municipals.html
Wiki User
∙ 14y ago
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