If a Fully- Taxable Bond Yields a BTROR of 8

question 1417

Multiple Choice

If a fully- taxable bond yields a BTROR of 8% (R_b = 8%) and a tax- exempt bond of similar risk earns a BTROR of 5% (R_f = 5%) , then the implicit tax is

• A) 5%.
• B) 3%.
• C) 8%.
• D) None of the above.

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Definitions:

Regression Line

A line of best fit through a dataset in regression analysis, representing the relationship between independent and dependent variables.

Coefficient of Correlation

A statistical measure that calculates the degree to which two variables move in relation to each other.

Best-fit Linear Equation

A mathematical formula that describes a straight line which closely approximates the relationship between two variables in a set of data.

Coefficient of Correlation

A measure that indicates the degree to which two variables are linearly related.