Norma is in the 33% marginal tax bracket.Because of her high tax rate,Norma would like to reinvest a $10,000,6%,certificate of deposit in a tax-exempt bond.What is the minimum rate of interest Norma would have to receive to make the tax exempt-bond a more profitable investment?

Question

Quizplus · Accepted Answer

The correct answer is A because the minimum rate of interest Norma would have to receive to make the tax-exempt bond a more profitable investment is 4.1%. This is because the after-tax return on the certificate of deposit is 6% * (1 - 33%) = 4.02%. Therefore, the tax-exempt bond must have a rate of interest of at least 4.1% to be more profitable.

Norma Is in the 33% Marginal Tax Bracket