Series 10 Exam Question 51: Answer and Explanation

Question: 51

A customer in the 30% tax bracket is considering investing in a municipal bond with a current yield of 6%. If the customer were to consider a corporate bond of equal quality, the corporate bond must yield at least:

• A. 8.57%.
• B. 7.8%.
• C. 9%.
• D. 4.2%.

Correct Answer: A

Explanation:

To find the tax equivalent yield, use the following: municipal rate/(100% - tax bracket) = 6%/.7 = 8.57%