Respuesta :
The equivalent pretax yield on a taxable bond is 7.68%
Equivalent pretax yield = Tax free yield/(1 - Tax Rate)
Equivalent pretax yield = 5.53%/(1 - 28%)
Equivalent pretax yield = 7.68%
The tax-equivalent yield is the go back that a taxable bond might want to yield in an effort to same the yield on a similar tax-exempt bond, along with a municipal bond. The calculation is a device that investors can use to examine the returns between a tax-unfastened investment and a taxable opportunity.
Tax-equivalent yield is determined by taking the yield of a tax-exempt bond and dividing it by one minus an investor's federal profits tax bracket. for example, if an investor is within the 32.zero% federal. profits tax bracket, and is seeking to compare a. taxable bond with a four.zero% yield to a tax-exempt.
To calculate the tax-free equivalent yield, multiply the corporate bond yield by way of the whole tax charge. that is the tax unfastened equal yield. In different phrases, this is the return wished from a tax unfastened funding to identical the go back of a company bond.
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