You are in the 32 percent tax bracket. If a non-taxable money market fund has a return of 3.8 percent, what return would you require on a taxable fund?

Question

Quizplus · Accepted Answer

To calculate the required return on a taxable fund, we need to use the after-tax return formula: Taxable return = Non-taxable return / (1 - Tax rate). 
In this case, the taxable return would be 3.8% / (1 - 0.32) = 5.59%. Therefore, the best choice would be B.

You Are in the 32 Percent Tax Bracket