Presume you are in the 22% tax bracket and your Bond portfolio has been averaging 5.98%...

Presume you are in the 22% tax bracket and your Bond portfolio has been averaging 5.98% rate of return, calculate your real rate of return on your savings after taxes. If you could purchase a tax exempt government bond at 4.97% rate of return which is the better investment?

Expert Solution

Real rate of return on bond after tax:-

=Before tax rate*(1-tax rate)

=5.98%*(1-22%)

=4.66%

Government bond is a better investment as it has a higher return than the after tax return on bond.

jeff jeffy answered 2 years ago

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