Marianne is in the 30% marginal tax bracket. For her, a 5% return on a tax-exempt...
Marianne is in the 30% marginal tax bracket. For her, a 5% return on a tax-exempt portfolio is equivalent to a 6.5% return on a taxable portfolio.
True or FALSE explain, please
Homework Answers
For a taxable portfolio,
after tax yield = Pretax yield * (1 - Tax)
after tax yield = 6.5% * (1 - 30%) = 4.55%
This is less than the 5% return that she is earning on tax-exempt portfolio.
Hence, answer is FALSE.
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