# Question

If the before tax rate of return on a riskless fully taxable bond is 7% and the before tax rate of return on a riskless tax favored asset is 5%, what is the implicit tax rate on the tax favored asset? If a tax exempt riskless asset earns a before tax rate of return of 4%, what is the explicit tax rate for the marginal investor on the riskless tax favored asset that returns 5%?

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