The yield that municipals should offer to an investor to prefer them over a corporate bond which offers a 9% yield when the investor is in the 30% combined tax bracket. Introduction: Municipal bonds are bonds offered by local and state governments to fund their projects. While these bonds are similar to the treasury bonds and corporate bonds, in the case of municipal bonds, the interest income that we get from these bonds are exempted from federal income taxation . In the issuing state, the interest income is exempted from local and state taxation. When these bonds mature, the capital gain taxes have to be paid. Also in the case when these bonds are sold for a price which is greater than the price that the investor had purchased the bond for, capital gain taxes are applicable.

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Definition Definition Tax imposed by the government on the "gain" or increase in the value of an asset at the time of its sale by the owner. Capital gain is computed based on the purchase price and sale price of the asset. If the sale price of the asset is more than the purchase price, there is a gain on the sale of asset. A tax is imposed on such gain in accordance with the applicable tax rates at the time of sale.

Chapter 2, Problem 13PS

Summary Introduction

To calculate:

The yield that municipals should offer to an investor to prefer them over a corporate bond which offers a 9% yield when the investor is in the 30% combined tax bracket.

Introduction:

Municipal bonds are bonds offered by local and state governments to fund their projects. While these bonds are similar to the treasury bonds and corporate bonds, in the case of municipal bonds, the interest income that we get from these bonds are exempted from federal income taxation. In the issuing state, the interest income is exempted from local and state taxation. When these bonds mature, the capital gain taxes have to be paid. Also in the case when these bonds are sold for a price which is greater than the price that the investor had purchased the bond for, capital gain taxes are applicable.

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An investor is in a 30% combined federal plus state tax bracket. If corporate bonds offer 8% yields, what yield must municipals offer for the investor to prefer them to corporate bonds?

An investor is in a 30% tax bracket. If corporate bonds offer 9% yields, what must municipals offer for the investor to prefer them to corporate bonds?

An investor is in a 30% tax bracket. If corporate bonds offer 6% yields, what must municipals offer for the investor to prefer them to corporate bonds? (Round your answer to 2 decimal places.)

Answer 2

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Definition Definition Tax imposed by the government on the "gain" or increase in the value of an asset at the time of its sale by the owner. Capital gain is computed based on the purchase price and sale price of the asset. If the sale price of the asset is more than the purchase price, there is a gain on the sale of asset. A tax is imposed on such gain in accordance with the applicable tax rates at the time of sale.

Chapter 2, Problem 13PS

Summary Introduction

To calculate:

The yield that municipals should offer to an investor to prefer them over a corporate bond which offers a 9% yield when the investor is in the 30% combined tax bracket.

Introduction:

Municipal bonds are bonds offered by local and state governments to fund their projects. While these bonds are similar to the treasury bonds and corporate bonds, in the case of municipal bonds, the interest income that we get from these bonds are exempted from federal income taxation. In the issuing state, the interest income is exempted from local and state taxation. When these bonds mature, the capital gain taxes have to be paid. Also in the case when these bonds are sold for a price which is greater than the price that the investor had purchased the bond for, capital gain taxes are applicable.

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Answer 3

Question

Definition Definition Tax imposed by the government on the "gain" or increase in the value of an asset at the time of its sale by the owner. Capital gain is computed based on the purchase price and sale price of the asset. If the sale price of the asset is more than the purchase price, there is a gain on the sale of asset. A tax is imposed on such gain in accordance with the applicable tax rates at the time of sale.

Chapter 2, Problem 13PS

Summary Introduction

To calculate:

The yield that municipals should offer to an investor to prefer them over a corporate bond which offers a 9% yield when the investor is in the 30% combined tax bracket.

Introduction:

Municipal bonds are bonds offered by local and state governments to fund their projects. While these bonds are similar to the treasury bonds and corporate bonds, in the case of municipal bonds, the interest income that we get from these bonds are exempted from federal income taxation. In the issuing state, the interest income is exempted from local and state taxation. When these bonds mature, the capital gain taxes have to be paid. Also in the case when these bonds are sold for a price which is greater than the price that the investor had purchased the bond for, capital gain taxes are applicable.

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Answer 4

Question

Definition Definition Tax imposed by the government on the "gain" or increase in the value of an asset at the time of its sale by the owner. Capital gain is computed based on the purchase price and sale price of the asset. If the sale price of the asset is more than the purchase price, there is a gain on the sale of asset. A tax is imposed on such gain in accordance with the applicable tax rates at the time of sale.

Chapter 2, Problem 13PS

Summary Introduction