A municipal bond selling at 12% above par offers a yield of 3.25%. A taxable Treasury note selling at an 8% discount offers a yield of 4.6%. An investor in the 32.5% tax bracket wishes to purchase an equal dollar amount of both bonds. The after-tax yield of the two-bond portfolio is closest to: A) 3.15%. B) 2.63%. C) 3.90%. D) 4.67%.

(.5 (3.25) + .5 (4.6 )) * ( 1-.325) 3.925 * .675 = 2.65 choice B?

i thought muncipal bonds weren’t taxed. A?

cpk, same calculations and I get 3.1775%. So I would go with A.

sorry, that is right, the muni yield is after tax already… same answer… 3.1775%.

cpk123 i did the same mistake …ans is A .

Thanks for pointing that out… so answer is .5 * 3.25 + .5 * 4.6 * .675 = 3.1775 so choice A.

Munis should not be taxed… 0.5 * 3.25 + 0.5 *4.6 * (1 - 0.325) 1.625 + 1.5525 = 3.1775% = A? - Dinesh S