Your best taxable investment opportunity has an EAR of 6.4%. Your best tax-free investment opportunity has an
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Your best taxable investment opportunity has an EAR of 6.4%. Your best tax-free investment opportunity has an EAR of 2.8%. If your tax rate is 32%, which opportunity provides the higher after-tax interest rate?
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To determine which opportunity provides the higher aftertax interest rate we need to compare their effective aftertax returns Heres how 1 Calculate the aftertax return of the taxable investment Aftertax return EAR 1 Tax rate 2 Calculate the aftertax return of the taxfree investment Since the investment is taxfree the aftertax return is simply the EAR itself 3 Compare the ...View the full answer
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Related Book For
Corporate Finance The Core
ISBN: 9781292158334
4th Global Edition
Authors: Jonathan Berk, Peter DeMarzo
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