Three? friends, Jodie,? Natalie, and? Neil, have asked you to determine the equivalent taxable yield on a municipal bond

Finance Apr 19, 2021

Three? friends, Jodie,? Natalie, and? Neil, have asked you to determine the equivalent taxable yield on a municipal bond. The? bond's current yield is 6.15 percent with five years left until maturity. Jodie is in the 15 percent marginal tax? bracket, Natalie is in the 25 percent? bracket, and Neil is in the 35 percent bracket. Calculate the equivalent taxable yield for your three friends. Assuming a similar AAA corporate bond yields 6.95 ?percent, which of your friends should purchase the municipal? bond?

Expert Solution

Equivalent taxable yield ;

Jodie = 7.24%

Natalie = 8.20%

Neil = 9.46%

For corporate bond, since tax free yield on corporate bonds for Jodie is highest therefore Jodie should purchase corporate bonds.

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