Winnie is deciding between investing $100,000 in a state government bond (muni bond)that pays 5% interest...
Winnie is deciding between investing $100,000 in a state government bond (muni bond)that pays 5% interest compounded annually or a corporate bond that pays 6% interestcompounded annually. Winnie will be in the 24% marginal tax bracket in 2020 (assumet he bond interest will not push her into a higher marginal tax bracket).
What interest rate would the corporate bond need to pay to provide the same after-taxincome as the state government bond?Note: enter your answer as a decimal rounded up to four places (e.g. 8.129987% wouldbe entered as .0813). Do not enter the "%" sign.
Homework Answers
The rate of interest corporate bonded to pay to provide the same after tax income as the state government bond
= government bond interest rate/(1- tax rate)
= 5%/(1- tax rate)
= 5% / (1-24%)
= .0658
Thus the correct answer is = .0658
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