Cookeville City Council is trying to issue a municipal bond that is tax free. A current taxable bond that has similar risk characteristics is traded at $1012.34. The taxable bond has 20-year maturity with semi-annual coupon payment at 7% annual coupon rate. If the tax rate is 25%, what is the annual coupon rate that the Cookeville City Council should provide on its municipal bond to equate its price to that of the taxable bond?

Cookeville City Council is trying to issue a municipal bond that is tax free. A current taxable bond that has similar risk characteristics is traded at $1012.34. The taxable bond has 20-year maturity with semi-annual coupon payment at 7% annual coupon rate. If the tax rate is 25%, what is the annual coupon rate that the Cookeville City Council should provide on its municipal bond to equate its price to that of the taxable bond?

CONCEPTS IN FED.TAX.,2020-W/ACCESS

20th Edition

ISBN:9780357110362

Author:Murphy

Publisher:Murphy

Chapter4: Income Exclusions

Section: Chapter Questions

Problem 58P

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