Kelly Phillips, an investor who resides in Livingston NJ, has a marginal tax rate of 28%. If a NJ municipal bond has a coupon rate of 5.83% and a YTM of 5.53%, what is the equivalent pretax yield on a taxable bond? a. 7.68% b. 8.10% c. 4.20% d. 3.98% e. 5.94%

Kelly Phillips, an investor who resides in Livingston NJ, has a marginal tax rate of 28%. If a NJ municipal bond has a coupon rate of 5.83% and a YTM of 5.53%, what is the equivalent pretax yield on a taxable bond? a. 7.68% b. 8.10% c. 4.20% d. 3.98% e. 5.94%

Pfin (with Mindtap, 1 Term Printed Access Card) (mindtap Course List)

7th Edition

ISBN:9780357033609

Author:Randall Billingsley, Lawrence J. Gitman, Michael D. Joehnk

Publisher:Randall Billingsley, Lawrence J. Gitman, Michael D. Joehnk

Chapter12: Investing In Stocks And Bonds

Section: Chapter Questions

Problem 7FPE: An investor in the 22 percent tax bracket is trying to decide which of two bonds to select: one is a...

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Question

100%

a. 7.68%

b. 8.10%

c. 4.20%

d. 3.98%

e. 5.94%

Expert Solution

Step 1

Yield to maturity = 5.53%

Marginal Tax = 28%

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