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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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%.
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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 ...
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