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Calculate the taxable equivalent yield of bond

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Your client's federal marginal income tax rate is 35%, and his state marginal income tax rate is 5%. He is considering investing in a muni bond issued by his local municipality that will yield him 6%. Calculate the taxable equivalent yield of this bond.

A. 29.00%
B. 9,23%
C. 8.40%
D. 3.60%

I know you use the formula TEY = r/ 1 - t
Where I am not sure is how to handle the state tax rate here. Should I be adding the federal and state tax rates together? If I do that I get an answer if 8.6% and that is not one of the answers given.

Please show all calculations in detail and do not use an excel spreadsheet.

Reference no: EM133003171

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