Question: Tiger National Bank also purchases municipal bonds issued by the city of Cleveland. Currently the bank is considering a nonqualified general obligation municipal issue. The bonds, which mature in 10 years, provide a nominal annual rate of return of 8.1 percent. Tiger National Bank has the same cost of funds and tax rate as stated in the previous problem.
a. Calculate the net after-tax return on this nonqualified municipal security.
b. What is the tax-equivalent yield for this nonqualified municipal security?