An investor purchases one municipal bond and one corporate bond that pay rates of return of 5% and 6.4%, respectively. If the investor is in the 15% tax bracket, his after-tax rates of return on the municipal and corporate bonds would be, respectively, ________.

Question

Quizplus · Accepted Answer

After-tax return on municipal bond = 0.05 = 5%
After-tax return on corporate bond = 0.064(1 - 0.15) = 0.0544 = 5.44%

An Investor Purchases One Municipal Bond and One Corporate Bond