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A tax-exempt municipal bond is trading in the market at a stated yield of 4%. A similar taxable bond is priced to a 6% yield.
A tax-exempt municipal bond is trading in the market at a stated yield of 4%. A similar taxable bond is priced to a 6% yield. Your average tax rate is 25% and your marginal tax rate is 30%. Which of the yields below is the best estimate of the tax-exempt municipal bond's Tax Equivalent Yield?
8.6%
9.3%
5.3%
5.7%
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