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Problem 5-51 (LO. 2) Tonya, who lives in California, inherited a $100,000 State of California bond in 2019. Her marginal Federal tax rate is 35%,
Problem 5-51 (LO. 2) Tonya, who lives in California, inherited a $100,000 State of California bond in 2019. Her marginal Federal tax rate is 35%, and her marginal state tax rate is 5%. The California bond pays 3.3% interest, which is not subject to California income tax. She can purchase a corporate bond of comparable risk that will yield 5.2% or a U.S. government bond that pays 4.6% interest. Hint: For state taxes, assume Tonya itemizes her deductions. What is the after-tax income from each bond? California bond: $ Corporate bond: $ U.S. government bond: $ x Which investment will provide the greatest after-tax yield? The California bond Feedback Check My Work When the Sixteenth Amendment was ratified by the states, there was some question as to whether the Federal government possessed the constitutional authority to tax interest on state and local government obligations. Taxing such interest was thought to violate the doctrine of intergovernmental immunity in that the tax would impair the state and local governments' ability to finance their operations
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