Suppose youre evaluating three alternative MMMF investments. The first fund buys a diversified portfolio of municipal securities from across the country and yields 3.4 percent. The second fund buys only taxable, short-term commercial paper and yields 5.4 percent. The third fund specializes in the municipal debt from the state of New Jersey and yields 3.1 percent. You are a New Jersey resident, your federal tax bracket is 35 percent, and your state tax bracket is 8 percent. (Assume your state taxes do not affect your federal taxable income.)

a. Calculate the aftertax yield for each of the alternatives. (Do not round intermediate calculations. Enter your answers as a percent rounded to 2 decimal places.)

	Aftertax Yield
Municipal Fund	3.10	%
Taxable Fund		%
New Jersey Municipal Fund		%

b. Which of these three MMMFs offers you the highest aftertax yield?

multiple choice

• New Jersey Fund

• Municipal Fund

• Taxable Fund