Answered step by step
Verified Expert Solution
Link Copied!

Question

1 Approved Answer

We discussed the differential tax rates among areas and taxpayers with respect to the implicit and explicit tax rates. You are requested to select a

We discussed the differential tax rates among areas and taxpayers with respect to the implicit and explicit tax rates. You are requested to select a taxable bond fund and compare it to two or three municipal bond funds that are state specific. Hence, there are three (or four) funds in total that are analyzed by you (one corporate bond fund, two municipal bond funds). The objective here is to see if a person can arbitrage a profit by selectively investing in another states municipal fund. One muni fund may be your state of residence (Pennsylvania) and the other might be a state with a zero-income tax rate. You might include a fourth state with a state income tax rate that is significantly higher than your state of residences state income tax rate.
For a given point in time, you are expected to determine if, and if so, to what extent, a wealth advantage exists for our base taxpayer. This is not an easy task since you need to consider several variables. For example, there are different
Federal income tax brackets (you might select the highest rate and your own marginal tax rate),
State income tax brackets (dependent on the states chosen by you (note, you can only choose one state with no state income tax (i.e., a zero-tax rate))),
Risk of bond fund (should be nearly equal or adjusted to approximate equality),
Standard deduction (although itemization would be a reasonable assumption for a small population of our country, you can ignore this issue unless you want to analyze it and simply assume you elect the standard deduction).
Please consider and elaborate on the above variables. Please be sure to document your sources used for this assignment, it is a requirement. Thank you!

Step by Step Solution

There are 3 Steps involved in it

Step: 1

blur-text-image

Get Instant Access to Expert-Tailored Solutions

See step-by-step solutions with expert insights and AI powered tools for academic success

Step: 2

blur-text-image_2

Step: 3

blur-text-image_3

Ace Your Homework with AI

Get the answers you need in no time with our AI-driven, step-by-step assistance

Get Started

Recommended Textbook for

The Concepts And Practice Of Mathematical Finance

Authors: Mark S. Joshi

2nd Edition

0521514088, 9780521514088

More Books

Students also viewed these Finance questions