with a 28% marginal tax rate, would a tax- free yield of 5.4% or a taxable...

Question

Question

with a 28% marginal tax rate, would a tax- free yield of 5.4% or a taxable yeild of 8.5% give you a better return on your savings?

Answer 1

Answer #1

After-tax yield = Pretax yield × (1 - Tax rate) = 8.50% × (1 - 0.28) = 6.12%

The after-tax yield on the taxable investment is 6.12% which is preferable to the tax-free investment.

Answer 2

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