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solmaris [256]
3 years ago
7

5. Mr. G has $15,000 to invest. He is undecided about putting the money into tax-exempt municipal bonds paying 7 percent annual

interest or corporate bonds paying 9.5 percent annual interest. The two investments have the same risk. a) Which investment should Mr. G make if his marginal tax rate is 33 percent? b) Would your conclusion change if Mr. G’s marginal tax rate is only 15%?
Business
2 answers:
shtirl [24]3 years ago
6 0

Answer:

a. Municipal bond

b. Yes. To Corporate Bond.

Explanation:

Municipal bonds are tax exempt so the better option will be the one offering a higher return after it is adjusted for tax.

a. Corporate after-tax rate = 9.5% * ( 1 - 33%)

= 0.06365‬

= 6.4%

<em>Municipal rate is higher at 7% and so is a better option. </em>

b. Corporate after-tax rate = 9.5% * ( 1 - 15%)

= 0.08075‬

= 8.08%

<em>Corporate bond return is now higher than Municipal bond so is a better option.</em>

Shalnov [3]3 years ago
4 0

Answer:

a. Municipal bond

b. Yes. To Corporate Bond

Explanation:

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Explanation:

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7 0
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Answer:

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Explanation:

Giving the following information:

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Explanation:

give 5 star

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