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muni yield must equal 10% to be equal to the tax shield 6 percent of the treasury yield. 100(muni yield) = 100(t-yield)/(1-(marginal tax)) 100x = 100x .06/(1-.40) 100x = 100x .06/0.6 divide both side by 100 x = .06/0.6 x= 0.10 muni rate equals 10%

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Q: If treasury bonds yield 6 percent and Carter's marginal income tax rate is 40 percent what yield on the Chicago municipal bonds would make Carter's treasurer indifferent between the two?
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