When a person has a marginal tax bracket of 35%, their taxable equivalent yield to a municipal bond is 6%.
What is the taxable equivalent yield?
It can be found by the formula:
= Municipal bond / ( 1 + tax rate)
Solving gives:
= 3.9% / ( 1 - 35%)
= 3.9% / 0.65
= 6%
In conclusion, a 6% return would be an appropriate taxable equivalent yield.
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