As a taxpayer,in order for you to be indifferent between the after tax returns on a corporate bond paying 8.5% and a tax-exempt municipal bond paying 6.12%,what would your tax bracket need to be?
A) 33%
B) 72%
C) 15%
D) 28%
E) Cannot tell from the information given

Question

Quizplus · Accepted Answer

To be indifferent, the after-tax return on the corporate bond should equal the tax-exempt return on the municipal bond. The formula is: Corporate Bond Rate * (1 - Tax Rate) = Municipal Bond Rate. Solving for the tax rate: 8.5% * (1 - Tax Rate) = 6.12%, which gives a tax rate of approximately 28%.

As a Taxpayer,in Order for You to Be Indifferent Between