Question
Considering two types of bonds for cilents investment portfolio. The first instrument is a fully taxable corporate bond offering a 9.5% annual rate of return.
Considering two types of bonds for cilents investment portfolio. The first instrument is a fully taxable corporate bond offering a 9.5% annual rate of return. The second instrument is a municipal bond issued. This bond is paying a 6.75% annual rate of return. Assume also that your client has the following tax rates: Federal tax level: 25% State tax level: 3% Local tax level: 2% A. If your client lives in an area and has triple tax free status, what would the after-tax return your client would get if he/she were to invest in the corporate bond? which bond would you recommend to your client, the municipal or the corporate?
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