Suppose you\'re evaluating three alternative MMMF investments. The first fund bu

Question

Suppose you're evaluating three alternative MMMF investments. The first fund buys a diversified portfolio of municipal securities from across the country and yields 3.95 percent. The second fund buys only taxable, short-term commercial paper and yields 5.7 percent. The third fund specializes in the municipal debt from the state of New Jersey and yields 3.6 percent. If you are a New Jersey resident, your federal tax bracket is 35 percent, and your state tax bracket is 8 percent. Calculate the aftertax yield for each of the alternatives. (Do not round intermediate calculations. Enter your answers as a percent rounded to 2 decimal places. Omit the "%" sign in your response.) Which of these three MMMFs offers you the highest aftertax yield? Taxable Fund Municipal Fund New Jersey Fund

Explanation / Answer

Income arising out of - Municipal Bond from across country will be subject to state tax and not federal tax Taxable bonds will be subject to both state and federal tax New Jersey Municipal fund is exempt from both state and federal tax Hence, after tax yield 1. Municipal Bond = 3.95% (1 - 0.08) = 3.634% 2. Taxable Bond = 5.7% (1 - 0.43) = 3.249% 3. New Jersey Municipal Bond = 3.6% Municipal Bond offers highest after tax yield

Related Questions

Navigate

• Browse (All)
• Browse S
• Subjects

---

---

Integrity-first tutoring: explanations and feedback only — we do not complete graded work. Learn more.