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What is his after-tax yield on the corporate bonds

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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?

a-2. What is his after-tax yield on the corporate bonds?

a-3. Which investment should Mr. G make?

b-1. Assume Mr. G's marginal tax rate is 12 percent. What is his after-tax yield on the municipal bonds?

b-2. What is his after-tax yield on the corporate bonds?

b-3. Which investment should Mr. G make?

Reference no: EM132408416

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