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The interest on some municipal bonds is tax free, in contrast to the interest on corporate bonds. If the current annual interest rates on otherwise similar(i.e., maturity, credit risk, liquidity) municipal and corporate bonds are 1.48% and 1.80%, respectively, what is the implied tax rate? *Make sure to input all percentage answers as numeric values without symbols, and use four decimal places of precision. For example, if the answer is 6%, then enter 0.0600.

Respuesta :

Answer:

Implicit tax rate = 0.1778 or 17.78 %

Explanation:

given data

municipal bond =  1.48% = 0.0148

corporate bonds = 1.80% = 0.0180

solution

we get here Implicit tax rate that is express as

Implicit tax rate = ( corporate bonds - municipal bond ) ÷ corporate bonds  ........................1

put here vale and we will get

Implicit tax rate = [tex]\frac{0.0180-0.0148}{0.0180}[/tex]    

solve it we get

Implicit tax rate = 0.1778 or 17.78 %

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