I:18-32 Implicit Tax Rates and Clientele Effects. Terrys marginal tax rate is 30%. He can invest in

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I:18-32 Implicit Tax Rates and Clientele Effects. Terry’s marginal tax rate is 30%. He can invest in a taxable bond yielding 7.5% before taxes. What is the implicit tax rate on a taxexempt bond of equivalent risk that yields 6%?

a. Which bond should Terry invest in? Why?

b. How would your answer to Part a change if Terry’s statutory marginal tax rate were 15%?

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