1. 2. 3. 5. Suppose the yield on a taxable fund is 1.50 percent, whereas the...

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1. 2. 3. 5. Suppose the yield on a taxable fund is 1.50 percent, whereas the yield on a tax-free fund is 1 percent. The investor's marginal tax rate is 28 percent. a. What is the tax-equivalent yield? Which would the investor prefer: the tax-free fund or the taxable fund? b. How much you would need to earn on a taxable bond to equal your 6 percent after-tax rate that you can earn on municipal bonds if your marginal tax rate is 27 percent? What is the yield on a tax-exempt municipal bond that is equivalent to a 6% yield on a taxable bond if your marginal tax rate is 25%? 35%? Suppose you are subject to both a federal income tax rate of 35% and a state income tax rate of 5%. If you can earn 5% on a tax-exempt security, what is the equivalent taxable equivalent yield? Complete the following table with taxable equivalent yields: Marginal tax rate a. b. Tax-exempt yield 3% 4% 5% 6% 25% 30% 35% 1. 2. 3. 5. Suppose the yield on a taxable fund is 1.50 percent, whereas the yield on a tax-free fund is 1 percent. The investor's marginal tax rate is 28 percent. a. What is the tax-equivalent yield? Which would the investor prefer: the tax-free fund or the taxable fund? b. How much you would need to earn on a taxable bond to equal your 6 percent after-tax rate that you can earn on municipal bonds if your marginal tax rate is 27 percent? What is the yield on a tax-exempt municipal bond that is equivalent to a 6% yield on a taxable bond if your marginal tax rate is 25%? 35%? Suppose you are subject to both a federal income tax rate of 35% and a state income tax rate of 5%. If you can earn 5% on a tax-exempt security, what is the equivalent taxable equivalent yield? Complete the following table with taxable equivalent yields: Marginal tax rate a. b. Tax-exempt yield 3% 4% 5% 6% 25% 30% 35%

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1 a The taxequivalent yield of the 1 taxfree fund is 1 1 028 1428 b The investor w... View the full answer