Julie is in the 28 percent tax bracket.She earns an 8 percent rate of return after taxes on a tax-free municipal bond.What will the after-tax rate of return be on a taxable bond (with equal risk)?

Question

Quizplus · Accepted Answer

The after-tax rate of return on a taxable bond for Julie, who is in the 28 percent tax bracket and earns an 8 percent rate of return after taxes on a tax-free municipal bond, would also be 8 percent. This is because the 8 percent rate of return she earns on the tax-free municipal bond is equivalent to the after-tax rate of return she would need to earn on a taxable bond to end up with the same amount of income, after considering her tax bracket.

Julie Is in the 28 Percent Tax Bracket