Question

An investor purchases one municipal and one corporate bond that pay rates of return of 8% and 10% respectively. If the investor is in the 15% tax bracket, his after tax rates of return on the municipal and corporate bonds would be respectively:______.a. 6.4% and 8%.

b. 6.8% and 10%.
c. 8% and 8.5%.
d. 8% and 10%.

Answer 1

c. 8% and 8.5%

Step-by-step explanation:

Calculation to determine his after tax rates of return on the municipal and corporate bonds would be respectively:

Tax rates of return on the municipal=8%*(1-0)

Tax rates of return on the municipal=8%

Tax rates of return on corporate bonds=

10*(1-15%)

Tax rates of return on corporate bonds=10*0.85

Tax rates of return on corporate bonds=8.5%

Therefore his after tax rates of return on the municipal and corporate bonds would be respectively:8% and 8.5%