Does anyone have a clue?

[lady-MGS]

My class right now is Finance and everything has been great till this 3rd week. My teacher has vanished. The online tutor doesn't have access to my e-book, therefore they cannot help and just my luck, the learning center cannot find a tutor to help. I am stuck beyond stuck. I have asked everyone I can think of and so I decided to come here to see if anyone can help. I am not asking for the answer, just the formula on how the heck to figure it out

Q:
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 the two bonds?

Any help would be GREATLY appreciated

[Minerva]

BlackArrow?

[BlackArrow]

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%

In more detail...see the section on comparison with corporate bonds in this wiki:

Municipal bond - Wikipedia, the free encyclopedia

- remember there is a difference between federal tax rate, state and municipal tax rates and depending on where you live and the bond it may be up to triple tax free.

Calculators

[Minerva]

[baconoclock]

42, the answer is always 42.

[lady-MGS]

Thank you so much BA!!

[{CLR} ObiTroy]

42, the answer is always 42.

[mapes]

Ummm wow

[lady-MGS]

So BA, I was wondering if you would like to be my private tutor now

Thank you so much again!

[The Freshmaker!]

42, the answer is always 42.

Or C. if in doubt always go with c.

[Caddys83]

Turbo Tax werks for me



Sorry just trolling

[Apache Warrior]

So BA, I was wondering if you would like to be my private tutor now

Thank you so much again!

Calling Sensei Blackarrow.
Apache

[BlackArrow]

So BA, I was wondering if you would like to be my private tutor now

Thank you so much again!

Lady feel free to reach out anytime you need help

[{CLR} Major.Massacre]

I love this place.

[{CLR} Major.Massacre]

+1 Arthur Dent.