Lester is considering a municipal bond yielding 5.5 percent and a corporate bond yielding 8.2 percent.His marginal tax rate is 28 percent.He should invest in the ________ bond because the critical marginal tax rate is ________ percent.

Question

Quizplus · Accepted Answer

Critical marginal tax rate = 1 − (0.055 / 0.082) = 33 percent
Lester should invest in the corporate bond because his marginal tax rate is less than the critical marginal rate.

Lester Is Considering a Municipal Bond Yielding 5