Suppose That Your Marginal Federal Income Tax Rate Is 30%,the

question 84

Multiple Choice

Suppose that your marginal federal income tax rate is 30%,the sum of your marginal state and local tax rates is 5%,and the yield on a thirty-year corporate bond is 10%.You would be indifferent between buying this corporate bond and buying a thirty-year municipal bond issued within your state (ignoring differences in liquidity,risk,and costs of information) if the municipal bond has a yield of

• A) 6.5%.
• B) 7.0%.
• C) 9.5%.
• D) 10.0%.

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Definitions:

Equilibrium Interest

The interest rate at which the quantity of loanable funds demanded equals the quantity supplied, balancing savings and borrowing.

Loanable Funds

The money available for borrowing in the financial markets, influenced by interest rates and economic conditions.

Useful Life

The period during which an asset is expected to be usable for its intended purpose.

Interest Rate

The cost of borrowing money or the return on invested capital, typically expressed as a percentage of the principal amount per period.