Evaluate Municipal Securities
Series 7 · Flashcards · Application
SERIES 7 · FLASHCARDS
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QUESTION
Identify the after-tax yield if a corporate bond yields
6
%
6\%
6%
and the marginal tax rate is
25
%
25\%
25%
.
QUESTION
Which option is more suitable at a
37
%
37\%
37%
tax rate:
4
%
4\%
4%
muni or
6
%
6\%
6%
corporate (ignore state tax)?
QUESTION
Identify the tax-equivalent yield if a muni yields
4
%
4\%
4%
and the marginal tax rate is
40
%
40\%
40%
.
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ANSWER
6.67
%
6.67\%
6.67%
. The TEY calculation adjusts the tax-exempt yield upward to reflect equivalent taxable return at the 40% rate.
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