Using the taxable equivalent yield concept

Reference no: EM13669033

Rahuk, See if you can help.

Kehn is a 70 years old retiree. His main investment objectives are safety of principal and current income. His retirement income sources include social security, rental income from a commercial investment property managed by a professional property management firm, and a $500,000 investment portfolio consisting of several utility company stocks and corporate bonds. Beth is currently in the 30% combined federal and state marginal tax rate. He is considering an investment in one of the following bonds:
1. DES Corporate Bond: A-Rated, 9% coupon rate, maturing in 7 years .
2. FGR Municipal Bond: AAA-rated, 7% coupon, maturing in 7 years.

Using the taxable equivalent yield concept, you are to help the ZZ advisor explain to Kehn why the FGR bond investment could offer a higher yield and lower risk. Make sure that you present the information in as simple a manner as possible without leaving out any pertinent information.

Reference no: EM13669033

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