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:

Nature Versus Nurture

A debate in psychology and sociology regarding the relative importance of genetic qualities (nature) and personal experiences (nurture) in determining or causing individual differences in physical and behavioral traits.

Social Psychology

The scientific study of how individuals think, feel, and behave in a social context.

Human Behavior

The range of actions and mannerisms exhibited by humans in conjunction with their environment, interactions, and psychological processes.

Psyche

A broader term for mind, encompassing emotions, desires, perceptions, and all other psychological processes.