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

An investor purchases one municipal bond and one corporate bond that pay rates of return of 5% and 6.4%, respectively. The investor is in the 15% tax bracket. Please calculate his after-tax rates of return on both the municipal bond and the corporate bond.

Please enter your answer with TWO decimal points.

  • Muni bond:  %
  • Corp bond:  %

Solutions

Expert Solution

Post tax rate = Rate * (1 - tax rate)
Pre tax rate Post tax rate calculation Post tax rate
Muni bond:  % 5% 5.00%
Corp bond:  % 6.40% = 6.4% * (1 - 15%) 5.44%

Please note Municipal bonds are generally tax exempt hence pre tax and post tax rates are same for municipal bonds.

jeff jeffy answered 2 years ago
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