An investor purchases one municipal and one corporate bond that pay rates of return of 6% and 8%, respectively. If the investor is in the 24% marginal tax bracket, his or her after-tax rates of return on the municipal and corporate bonds would be ________ and ______, respectively.

Question

Quizplus · Accepted Answer

Municipal bonds are typically tax-exempt, so the after-tax return remains 6%. For corporate bonds, the after-tax return is calculated as 8% * (1 - 0.24) = 6.08%.

An Investor Purchases One Municipal and One Corporate Bond That