The tax exempt yield is 12.5%.
We are given the rate of interest and marginal tax in the question. The interest rate is 9% and marginal tax rate is 28%.
The formula to calculate the tax exempt equivalent is as follows -
Tax exempt yield = Interest rate ÷ (1 - your tax rate)
Keep the values in formula to find the value of tax exempt yield -
Tax exempt yield = 9% ÷ (1 - 28%)
Tax exempt yield = 0.09 ÷ (1 - 0.28)
Tax exempt yield = 0.09 ÷ 0.72
Tax exempt yield = 0.125
Calculating tax exempt yield in percentage is -
Tax exempt yield = 0.125*100
Tax exempt yield = 12.5%
Hence, the tax exempt yield is 12.5%.
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