Suppose youre evaluating three alternative MMMF investments. The first fund buys a diversified portfolio of municipal securities from across the country and yields 3.7 percent. The second fund buys only taxable, short-term commercial paper and yields 6.2 percent. The third fund specializes in the municipal debt from the state of New Jersey and yields 3.9 percent. Your federal income tax rate is 35 percent and you are a resident of Texas, which has no state income tax.

a. Calculate the after-tax yield for each of the alternatives Municiple Funds? Taxable Funds? New jersey Municiple Fund?

b. Which of these three MMMFs offers you the highest after-tax yield?

Taxable Fund

New Jersey Fund

Municipal Fund