If corporate bond yields are at 8.4% and you are in the 34% federal marginal income tax bracket, at what level of municipal bond yields would you be indifferent between owning corporate bonds or muni bonds? Ignore the impact of state and local taxes

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If corporate bond yields are at 8.4% and you are in the 34% federal marginal income tax bracket, at what level of municipal bond yields would you be indifferent between owning corporate bonds or muni bonds? Ignore the impact of state and local taxes.

  1. A) 95%
  2. B) 54%
  3. C) 03%
  4. D) 67%
  5. E) 11%
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Answer: B

Response: 8.4(1 – .34) = 5.54%

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