An investor purchases one municipal and one corporate bond that pay rates of return of 6% and 8%,respectively.If the investor is in the 25% marginal tax bracket,his or her after tax rates of return on the municipal and corporate bonds would be ________ and ______,respectively.

Question

Quizplus · Accepted Answer

Municipal bond interest is typically tax-exempt, so the after-tax return remains 6%. The corporate bond's after-tax return is 8% * (1 - 0.25) = 6%.

An Investor Purchases One Municipal and One Corporate Bond That