Series 7 - General Securities Representative Exam

Preview Mode

John is in the 12% tax bracket. Which of the following bonds will provide John with the highest after tax yield?

2% GO bond
A
2.10% T-bond
B
2.3% corporate bond
C
2.25% collateral trust bond
D

Explanations

GO bonds are not federally taxable. The other 3 are Using the tax-equivalent yield TEY equation, we can see that the Corporate bond will have the highest yield. muni yield / 100% - tax bracket (12%) = 2.27% / So, 2% divided by 88% is 2.27%. The corporate bond yield is higher

Pricing