Sonya has a marginal tax rate of 36 percent.A corporate bond is yielding 7.4 percent and a municipal bond is yielding 3.6 percent.Sonya should invest in the ________ bond because the critical marginal tax rate is ________ percent.

Question

Quizplus · Accepted Answer

Critical marginal tax rate = 1 - (0.036 / 0.074) = 51 percent
Sonya should invest in the corporate bond because her marginal tax rate is lower than the critical marginal rate.

Sonya Has a Marginal Tax Rate of 36 Percent