For a taxable security, the tax exempted interest rate on municipal bonds used to determine the ___________?
Correct answer: A. tax equivalent rate of return
- A. tax equivalent rate of return
- B. local rate of return
- C. withholding tax rate
- D. general sales tax rate
Explanation
The tax-equivalent rate of return converts tax-exempt municipal-bond interest into the taxable return needed for a fair comparison. It accounts for the investor’s tax rate, unlike withholding or sales tax rates.
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About Business Finance
Business finance explains how organisations plan, obtain and use money while balancing risk, return and liquidity. Topics include financial statements, time value of money, budgeting, working capital, capital structure, sources of finance, investment appraisal and cost of capital. Capital budgeting evaluates long-term projects, whereas working capital manages day-to-day operations.
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