Juan Was Considering Purchasing an Interest in a Tax-Exempt Bond

question 29

Essay

Juan was considering purchasing an interest in a tax-exempt bond fund for $100,000 when he discovered that the interest must be included on his state income tax return.The interest rate is 5%.His marginal Federal tax rate is
35%, and his marginal state income tax rate is 10%.Juan itemizes his deductions on his Federal income tax return.As an alternative, Juan can purchase a state bond (a double-exempt bond) yielding 4.9% interest that is exempt from both Federal and state income tax.Which investment would yield the greater after-tax return?

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Definitions:

Notice-And-Comment Rulemaking

A regulatory process that requires agencies to publish proposed rules, accept public comments, and consider those comments before finalizing regulations.

Binding Legal Effect

The characteristic of a document, contract, or agreement that makes it legally enforceable by being properly executed according to the law.

Final Rule

The last version of a rule or regulation issued by a government agency after consideration of public comments and review.

Administrative Process

The procedures and operations involved in running an organization, government, or institution, including tasks such as filing, record-keeping, and policy implementation.