An individual can purchase.a 5% tax exempt or a 7% corporate bond. His marginal tax rate to buy the tax exempt should be at least

Question

Quizplus · Accepted Answer

In order to benefit from tax-exempt investments, an individual should have a high marginal tax rate. The reason for this is that the tax-exempt investments offer a lower return compared to taxable investments. Therefore, an individual needs to have a high marginal tax rate to offset the lower return from tax-exempt investments.

The highest marginal tax rate for an individual in 2021 is 37%. However, choosing Option B (29%) is a better option as it provides a safety margin to cover any potential changes in tax rates or income. Furthermore, if the individual's marginal tax rate is lower than 29%, it may not be advantageous to invest in tax-exempt investments. Therefore, Option B provides the best choice for an individual to purchase tax-exempt investments.

An Individual Can Purchase