Tax status and expectations theorya new-issue of a, Ask an Expert

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Tax Status and Expectations Theory.

A new-issue of a tax-exempt municipal bond rated Aaa by Moody's Investor Service is priced to yield 8 percent. If you are in the 33 percent tax bracket, what yield would you need to earn on a taxable bond to be indifferent? Show your work. Check figure: 0.1194 or 11.94%.

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