Tyler is going to invest $2,000 in a money market mutual fund.He has narrowed his choices to a tax-free fund currently earning 2.8 percent and a taxable fund earning 4.1 percent.If Tyler is in the 28 percent marginal tax bracket,which of these funds would give him the highest after-tax yield?

Question

Quizplus · Accepted Answer

The after-tax yield of the taxable fund is calculated by multiplying the yield by (1 - tax rate): 4.1% * (1 - 0.28) = 2.952%. This is higher than the 2.8% yield of the tax-free fund.

Tyler Is Going to Invest $2,000 in a Money Market