I had a 50/50 chance of getting this question right and the answer is 12.2%, but I don't know how to draw that conclusion. The problem is: Would you prefer a fully taxable investment earning 12.2% or a tax exempt investment of 9.2%. Assuming a 24% tax rate. Please help me understand.
I had a 50/50 chance of getting this question right and the answer is 12.2%, but I don't know how to draw that conclusion. The problem is: Would you prefer a fully taxable investment earning 12.2% or a tax exempt investment of 9.2%. Assuming a 24% tax rate. Please help me understand.
Essentials Of Investments
11th Edition
ISBN:9781260013924
Author:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Publisher:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Chapter1: Investments: Background And Issues
Section: Chapter Questions
Problem 1PS
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I had a 50/50 chance of getting this question right and the answer is 12.2%, but I don't know how to draw that conclusion. The problem is:
Would you prefer a fully taxable investment earning 12.2% or a tax exempt investment of 9.2%. Assuming a 24% tax rate.
Please help me understand.
Expert Solution
Step 1
The tax exempt investment is a type of investment in which the tax will not be applied in case of interest payments or returns.
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