An investor purchases one municipal and one corporate bond that pay rates of return of 7.2% and 9.1%,respectively.If the investor is in the 15% 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

The after-tax rate of return on municipal bond can be calculated as:
After-tax rate = pre-tax rate × (1 - tax rate)
= 7.2% × (1 - 0.15)
= 6.12%
The after-tax rate of return on the corporate bond can be calculated as:
After-tax rate = pre-tax rate × (1 - tax rate)
= 9.1% × (1 - 0.15)
= 7.735%
Therefore, the after-tax rates of return on the municipal and corporate bonds would be 6.12% and 7.735%, respectively. Hence, the answer is B.

An Investor Purchases One Municipal and One Corporate Bond That