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Suppose that your marginal federal income tax rate is 20%, and the yield on thirty-year U.S....

Suppose that your marginal federal income tax rate is 20%, and the yield on thirty-year U.S. treasury bonds is 2.5% and the yield on thirty-year municipal bond 2.2%. What is the tax adjusted risk premium on the municipal bond?

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Answer #1

Answer:

Municipal bond yield=U.S Treasury bond*(1- tax)

                                   =2.5%*(1-20%)

                                   =2%

Hence, tax adjusted on municipal bond is 2%

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