Essay
Cliff Clarkson is 70 years old and wants to diversify his investment portfolio.He must decide if he should invest in tax-free municipal bonds or in corporate bonds.The tax-free bonds are highly rated and pay 4.5%.The corporate bonds are more speculative and pay 6.5%
a.If Cliff is in the 25% tax bracket,what is the taxable equivalent yield for the municipal bond?
b.If you were Cliff,would you choose the municipal bonds or the corporate bonds?
Justify your answer.
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a.Taxable equivalent yield = Tax-exempt ...View Answer
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