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Understanding Municipal Bonds

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What are municipal bonds? We are comparing the equivalent tax-free rate of two investments: 1) A taxable corporate bond that is at a rate of 10%, with a marginal tax of 30%, and 2) A tax-free municipal bond that is at a rate of 8%. Which of the two investments offers a better return considering the tax impact?

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Municipal bonds are debt issued by the municipality.

Let us now compare the equivalent tax-free rate of two investments: 1) A ...

Solution Summary

Solution compares the taxable corporate bond that is at a rate of 10%, with a marginal tax of 30%, and a tax-free municipal bond that is at a rate of 8%.

$2.19