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What the equivalent taxfree rate for the taxable bond

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Problem 1: Beau would like to invest in bonds and is considering either a taxable bond with an interest rate of 5% or a tax-exempt municipal bond of comparable risk and quality with an interest rate of 3%. Beau's marginal federal income tax rate is 10%. He lives in a state with no state income tax. In order to help Beau compare these two bonds, what the equivalent taxfree rate for the taxable bond?

Reference no: EM132652526

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