The taxable equivalent yield is 6.67%.
Given Information
Municipal bond has yield of 5%
Tax rate = 25 percent
Taxable equivalent yield = ?
- The formula for use to derive the taxable equivalent yield is {Current yield on municipal bond / (1-tax rate).
Taxable equivalent yield = 5% / (1 - 25%)
Taxable equivalent yield = 0.05 / 0.75
Taxable equivalent yield = 0.06666666666
Taxable equivalent yield = 6.67%
Therefore, the taxable equivalent yield is 6.67%.
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