Answer:
10.42%
Explanation:
The computation of the tax-equivalent yield of this bond is shown below:
tax-equivalent yield = Tax free rate ÷ (1 - tax rate)
where,
Tax-free rate is 0.075
And, the tax rate is 28%
Now placing these values to the above formula
So, the tax-equivalent yield of this bond is
= 0.075 ÷ (1 - 0.28)
= 10.42%
We simply applied the above formula to determine the tax-equivalent yield of this bond and the same is to be considered
