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 6.84

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 7.89 percent, which of your friends should purchase the municipal bond?

The equivalent taxable yield for Jodie who has a 15 percent marginal tax bracket is nothing %.

(Round to two decimal places.)

The equivalent taxable yield for Natalie who has a 25 percent marginal tax bracket is nothing %.

(Round to two decimal places.)

The equivalent taxable yield for Neil who has a 35 percent marginal tax bracket is nothing %.

(Round to two decimal places.)

Assuming a similar AAA corporate bond yields 7.89 percent, which of your friends should purchase the municipal bond? (Select the best answer below.)

A.

None of your friends should purchase the municipal bond since the taxable equivalent yield for each of them is higher than the 7.89 percent available on the similarly rated corporate bond, although Neil would receive the least benefit of the choice because he is in the highest tax bracket.

B.

Each of your friends should purchase the municipal bond since the taxable equivalent yield for each of them is higher than the 7.89 percent available on the similarly rated corporate bond, although Neil would receive the most benefit of the choice because he is in the highest tax bracket.

Click to select your answer(s).