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THE Table 2.2 Tax-Exempt Yield Marginal Tax Rate 1% Equivalent taxable yields corresponding to various tax-exempt yields 2% 3% 4% 5% 20% 1.25% 2.50% 3.75%

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THE Table 2.2 Tax-Exempt Yield Marginal Tax Rate 1% Equivalent taxable yields corresponding to various tax-exempt yields 2% 3% 4% 5% 20% 1.25% 2.50% 3.75% 5.00% 6.25% 30 1.43 2.86 4,29 5.71 7.14 40 1.67 3.33 5.00 667 8.33 50 2.00 4.00 6.00 8.00 10.00 1.Suppose your tax bracket is 40%, would you rather hold a 7% taxable bond or a 5% tax-free bond? What is the equivalent taxable yield of the 5%tax-free yield? 2.Calculate three different choice's present value, and then decide which one is the best choice ? (Risk- free Rate is 5%) choice 3 choice 2 choice 1 $20 today $100 $50 year1 $35 $110 year2

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