A 45 Percent Coupon Municipal Bond Has 10 Years Left to to Maturity

A 4.5 percent coupon municipal bond has 10 years left to maturity and has a price quote of 97.75. The bond can be called in four years. The call premium is one year of coupon payments. What is the bond's taxable equivalent yield for an investor in the 33 percent marginal tax bracket? (Assume interest payments are paid semiannually and a par value of $5,000.)

A) 4.5 percent
B) 4.78 percent
C) 7.13 percent
D) 14.48 percent

Correct Answer:

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