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Suppose that the government imposes a 39.00% tax on the interest earned from ordinary bonds, but a 0% tax on the interest earned from municipal
Suppose that the government imposes a 39.00% tax on the interest earned from ordinary bonds, but a 0% tax on the interest earned from municipal bonds. If the market interest rate that ordinary bonds pay is 7.00%, what must the interest rate on municipal bonds be if there is no opportunity for arbitrage between these two types of bonds? Give your answer to two decimals.
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