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A 3.25 percent coupon municipal bond with a par value of $5000 has 12 years left...

  1. A 3.25 percent coupon municipal bond with a par value of $5000 has 12 years left to maturity and has a current price of $4937.50. The bond can be called in five years. The call premium is one year of coupon payments. What is the bond's taxable equivalent yield for an investor in the 35 percent marginal tax bracket? (Assume interest payments are paid semi-annually and a par value of $5,000.) Hint: Calculate the yield of this municipal bond (and recall what you learned in taxation chapter about municipal bond after tax yield).
    1. 3.38 percent
    2. 5.00 percent
    3. 5.20 percent
    4. 10.12 percent
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