A young couple has received a gift of $5000, which they would like to use to buy shares in a mutual fund. They are in the 15% bracket for federal income tax, and they pay no state or local income taxes. 

Should they purchase shares in a tax-free municipal bond fund that pays 4% annual interest or a high quality corporate bond fund that pays 6% interest? 

Both funds are highly recommended, and both have had similar fluctuations in price; the only difference between the two funds is that the interest from the municipal bond fund is tax deductible, whereas the higher interest from the corporate bond fund is not.

Answer rating: 100% (QA)

To determine which fund would be more beneficial we need to compare the aftertax retu... View the full answer