SIE Exam Question 753: Answer and Explanation

Question: 753

Which of the following is the formula to calculate an investment's taxable equivalent yield?

• A. Taxable equivalent yield = Tax-free yield ÷ (1 - Marginal tax rate)
• B. Taxable equivalent yield = Tax-free yield ÷ (1 + Marginal tax rate)
• C. Taxable equivalent yield = (1 - Marginal tax rate) ÷ Tax-free yield
• D. Taxable equivalent yield = (1 + Marginal tax rate) ÷ Tax-free yield

Correct Answer: A

Explanation:

Taxable equivalent yield = Tax-free yield ÷ (1 - Marginal tax rate)