The coupon rate on a tax-exempt bond is 5.6%, and the rate on a taxable bond is 8%.Both bonds sell at par. The?

The coupon rate on a tax-exempt bond is 5.6%, and the rate on a taxable bond is 8%.Both bonds sell at par. The tax bracket (marginal tax rate) at which an investor would be indifferent between the two bonds is:

A. 30.0%.

B. 39.6%.

C. 41.7%.

D. 42.9%.

2 Answers

  • nathan f
    1 month ago

    Do the math.

    A 10000 bond at 8% will generate $800 in income. At 5.6% it will generate $560.

    If you pay taxes of 30% on the 800 that will be $240 leaving you with $560, the exact same as the tax free did. The first responder is correct.

  • InspectorBudget
    1 month ago

    A

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