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Corporate bonds issued by Johnson Corporation currently yield 8.5%. Municipal bonds of equal risk currently yield 6%. At what tax rate would an investor be indifferent between these two bonds? Round your answer to two decimal places.

The answer I keep coming up with is incorrect. I use this formula: 8.5(1-.06)=7.99, but when i work the homework problem in the book I get a different answer.

  • Finance -

    Bond Yield Example Data
    A B

    1 FV 1000
    2 Annual Coupon Rate 7.5%
    3 Annual Return 5.5%
    4 Years to Maturity 14
    5 Years 1
    6 Payment Frequency 1
    7 Value of Bond 1191.79

    PUT THIS IN EXCEL AND YOU HAVE A CALCULATOR

    VALUE OF BOND=
    =-PV(B4/B7,B5*B7,B3/B7*B2,B2)

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