Suppose the interest rate on a taxable corporate bond is 4 percent while a municipal, tax exempt bond has an interest rate of 3 percent, and they are similar in every other way. Assuming the income tax rate is 30 percent, calculate the after tax interest rate on the corporate bond. Is it higher or lower than the after tax return on the municipal bond?
Suppose the interest rate on a taxable corporate bond is 4 percent while a municipal, tax exempt bond has an interest rate of 3 percent, and they are similar in every other way. Assuming the income tax rate is 30 percent, calculate the after tax interest rate on the corporate bond. Is it higher or lower than the after tax return on the municipal bond?
Chapter4: Income Exclusions
Section: Chapter Questions
Problem 58P
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- Suppose the interest rate on a taxable corporate bond is 4 percent while a municipal, tax exempt bond has an interest rate of 3 percent, and they are similar in every other way. Assuming the income tax rate is 30 percent, calculate the after tax interest rate on the corporate bond. Is it higher or lower than the after tax return on the municipal bond?
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