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Question 18 (2 points) Interest income is taxable in Canada according to the personal marginal tax rate. To help the municipal government to raise money,
Question 18 (2 points) Interest income is taxable in Canada according to the personal marginal tax rate. To help the municipal government to raise money, tax-exempt bonds are issued to attract investors. Basically, investors purchasing tax-exempt bonds don't need to pay tax on their interest income. An investor is now choosing between two bonds. Bond A is tax-free with a yield to maturity rate of 4%. Bond B is a normal bond. Her limit in her Tax-Free Savings Account (TFSA) account is $20,000 and her maginal tax rate is 52%. After thorough consideration, she decided to invest $30,000 in bond A and $20,000 in bond B. Given this allocation decision, what is the most likely YTM for bond B? Hint: The interest income in a TFSA is not taxed. The answer is 8.83%. The answer is 3.90%. The answer is 9.33%. The answer is 7.83%. Question 18 (2 points) Interest income is taxable in Canada according to the personal marginal tax rate. To help the municipal government to raise money, tax-exempt bonds are issued to attract investors. Basically, investors purchasing tax-exempt bonds don't need to pay tax on their interest income. An investor is now choosing between two bonds. Bond A is tax-free with a yield to maturity rate of 4%. Bond B is a normal bond. Her limit in her Tax-Free Savings Account (TFSA) account is $20,000 and her maginal tax rate is 52%. After thorough consideration, she decided to invest $30,000 in bond A and $20,000 in bond B. Given this allocation decision, what is the most likely YTM for bond B? Hint: The interest income in a TFSA is not taxed. The answer is 8.83%. The answer is 3.90%. The answer is 9.33%. The answer is 7.83%
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