Question
A tax-exempt security's rate is determined by mathematically setting its after-tax rate equal with that of a taxable security (TS). The tax paid on a
A tax-exempt security's rate is determined by mathematically setting its after-tax rate equal with that of a taxable security (TS). The tax paid on a taxable security is the marginal tax rate (MTR).
Elki would like to invest $54,000 in tax-exempt securities. He now has the money invested in a certificate of deposit that pays 5.30% annually. What rate of interest would the tax-exempt security have to pay to result in a greater return on Elki's investment than the certificate of deposit?
Work the problem assuming the following marginal tax rates:
Round the tax rates to two decimal places.
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