Question

Mr. G has $15,000 to invest. He is undecided about putting the money into tax-exempt municipal bonds paying 3.5 percent annual interest or corporate bonds paying 4.75 percent annual interest. The two investments have the same risk. a-1. Assume Mr.G's marginal tax rate is 32 percent. What is his after-tax yield on the municipal bonds

Answer 1

Answer:

3.5 percent

Explanation:

Data provided in the question

Invested amount = $15,000

Annual interest rate tax-exempt = 3.5%

Corporate bonds annual interest = 4.75%

So after considering the marginal tax rate of 32%, the after tax yield on the municipal bonds is the same as annual interest rate tax- exempt i.e 3.5%

So all other information should be ignored.