A municipal bond has a YTM of 4.11 percent while the YTM of a comparable taxable bond is 6.16 percent. What is the tax rate that will make an investor indifferent between the municipal bond and the taxable bond

tax-rate 32.73%

Explanation:

The municipal bonds are tax-free thus, the private corporate bond is a pre-tax yield. We should solve for thetax rate which makes the 6.16% private bond yield 4.11% after tax:

0.0611 x (1 - t) = 0.0411

t = 1 - 0.0411/0.0611 = 0,32733224

Being taxed at 32.73% will make the investor indifferent between these two options.