2 Assume that you are in one of the 7 federal tax brackets h

2) Assume that you are in one of the 7 federal tax brackets (https://www.nerdwallet.com/blog/taxes/federal-income-tax-brackets/ ) and have an opportunity to invest in a municipal bond with either a 4%, 5%, 6%, 7%, or 8% yield. Use the formula below to calculate your Tax Equivalent Yield: Tax Equivalent Yield = Municipal Yield/ (100%-Tax Bracket) Repeat the process and state how your tax bracket impacts such an investment Note: The probability of 2 persons obtaining the same answer is minimal.

Solution

Tax rate bracket in %

10%

12%

22%

24%

32%

35%

37%

Tax equivalent Yield = municipal Yield/(100%-tax bracket)

Municipal Bond Yield in %

4%

4.44%

4.55%

5.13%

5.26%

5.88%

6.15%

6.35%

5%

5.56%

5.68%

6.41%

6.58%

7.35%

7.69%

7.94%

6%

6.67%

6.82%

7.69%

7.89%

8.82%

9.23%

9.52%

7%

7.78%

7.95%

8.97%

9.21%

10.29%

10.77%

11.11%

8%

8.89%

9.09%

10.26%

10.53%

11.76%

12.31%

12.70%

I choose 10% as income tax rate so Municipal bond tax equivalent Yield

Municipal Bond Yield in %

tax rate-10%

Tax equivalent Yield = municipal Yield/(100%-tax bracket)

4%

10%

4.44%

5%

10%

5.56%

6%

10%

6.67%

7%

10%

7.78%

8%

10%

8.89%

Tax rate bracket in %	10%	12%	22%	24%	32%	35%	37%
Tax equivalent Yield = municipal Yield/(100%-tax bracket)
Municipal Bond Yield in %
4%	4.44%	4.55%	5.13%	5.26%	5.88%	6.15%	6.35%
5%	5.56%	5.68%	6.41%	6.58%	7.35%	7.69%	7.94%
6%	6.67%	6.82%	7.69%	7.89%	8.82%	9.23%	9.52%
7%	7.78%	7.95%	8.97%	9.21%	10.29%	10.77%	11.11%
8%	8.89%	9.09%	10.26%	10.53%	11.76%	12.31%	12.70%
I choose 10% as income tax rate so Municipal bond tax equivalent Yield
Municipal Bond Yield in %	tax rate-10%	Tax equivalent Yield = municipal Yield/(100%-tax bracket)
4%	10%	4.44%
5%	10%	5.56%
6%	10%	6.67%
7%	10%	7.78%
8%	10%	8.89%