The Nominal Interest Rate on Taxable Bonds Is 8%,while on Municipal

question 53

Essay

The nominal interest rate on taxable bonds is 8%,while on municipal bonds (which aren't taxable)it is 5%.The expected inflation rate is 3% and the tax rate on interest income is 40%.Calculate the expected after-tax real interest rate on both bonds.Which would be the better investment? Now suppose the actual inflation rate turned out to be 6%.Which bond was the better investment? Would your answer change if inflation had turned out to be 0%?

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Definitions:

Functionalist Perspective

A viewpoint within sociology that emphasizes the role that each part of society plays in maintaining the stability and functioning of the whole.

Ethnocentrism

The tendency to view one’s own culture as superior to all others.

Cultural Relativism

The principle that an individual's beliefs and activities should be understood in terms of their own culture, rather than judged against the criteria of another.

Sociological Imagination

C. W. Mills’s term for the ability to perceive how dynamic social forces influence individual lives.