Question

In: Finance

An investor purchases one municipal and one corporate bond that pay rates of return of 7.2%...

An investor purchases one municipal and one corporate bond that pay rates of return of 7.2% and 9.1%, respectively. If the investor is in the 12% marginal tax bracket, his or her after-tax rates of return on the municipal and corporate bonds would be ________ and ______, respectively.

Solutions

Expert Solution

Sol:

After Tax return on municipal bond = 0.072 or 7.2%

After Tax return on corporate bond = 0.091× (1 - 0.12) = 0.08008 or 8.008%


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