Calculate the​ after-tax return of​ a(n) 5.69 ​percent, 20-year,​ A-rated corporate bond for an investor in the 10 percent marginal tax bracket. Compare this yield to​ a(n) 4.82 ​percent, 20-year,​ A-rated, tax-exempt municipal​ bond, and explain which alternative is better. Repeat the calculations and comparison for an investor in the 35 percent marginal tax bracket.
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Part 1
The​ after-tax return of the 5.69​%, ​20-year, A-rated corporate bond for an investor in the 10​% marginal tax bracket is

enter your response here​%. ​

To determine the after-tax return of the 5.69% corporate bond for an investor in the 10% marginal tax bracket, we need to calculate the effective yield after accounting for the taxes.

### Calculation for the 10% Marginal Tax Bracket

1. **Corporate Bond After-Tax Return:**
   \[
   \text{After-tax return} = \text{Coupon rate} \times (1 - \text{Tax rate})
   \]
   Given:
   - Coupon rate = 5.69%
   - Tax rate = 10% (or 0.10 in decimal form)
   
   \[
   \text{After-tax return} = 5.69\% \times (1 - 0.10) = 5.69\% \times 0.90 = 5.121\%
   \]

2. **Comparison with Municipal Bond:**
   - Municipal bond yield = 4.82%
   - Municipal bonds are tax-exempt, so the after-tax return remains 4.82%.

For an investor in the 10% tax bracket:
- After-tax return on the corporate bond: 5.121%
- Return on the municipal bond: 4.82%

Thus, the corporate bond has a higher after-tax return for an investor in the 10% tax bracket.

### Calculation for the 35% Marginal Tax Bracket

1. **Corporate Bond After-Tax Return:**
   \[
   \text{After-tax return} = \text{Coupon rate} \times (1 - \text{Tax rate})
   \]
   Given:
   - Coupon rate = 5.69%
   - Tax rate = 35% (or 0.35 in decimal form)
   
   \[
   \text{After-tax return} = 5.69\% \times (1 - 0.35) = 5.69\% \times 0.65 = 3.6985\%
   \]

2. **Comparison with Municipal Bond:**
   - Municipal bond yield = 4.82%
   - Municipal bonds are tax-exempt, so the after-tax return remains 4.82%.

For an investor in the 35% tax bracket:
- After-tax return on the corporate bond: 3.6985%
- Return on the municipal bond: 4.82%

Thus, the municipal bond has a higher after-tax return for an investor in the 35% tax bracket.

### Summary
- For an investor in the 10% tax bracket, the corporate bond (5.121%) is better than the municipal bond (4.82%).
- For an investor in the 35% tax bracket, the municipal bond (4.82%) is better than the corporate bond (3.6985%).

Would you like more details or have any questions?

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Here are some related questions you might find interesting:
1. How do different tax brackets affect investment returns?
2. What are the risks associated with corporate bonds compared to municipal bonds?
3. How does bond rating affect the interest rate offered by a bond?
4. What other factors should be considered when choosing between corporate and municipal bonds?
5. How does the maturity of a bond influence its yield and risk?

**Tip:** Always consider your tax bracket and investment goals when choosing between taxable and tax-exempt bonds to optimize your returns.

Calculate the​ after-tax return of​ a(n) 5.69 ​percent, 20-year,​ A-rated corporate bond for an investor in the 10 percent marginal tax bracket. Compare this yield to​ a(n) 4.82 ​percent, 20-year,​ A-rated, tax-exempt municipal​ bond, and explain which alternative is better. Repeat the calculations and comparison for an investor in the 35 percent marginal tax bracket.

Learn how to calculate the after-tax return for a 5.69% corporate bond compared to a 4.82% tax-exempt municipal bond for investors in the 10% and 35% tax brackets. This problem involves percentage calculations, finance concepts, and bond yield comparison. Ideal for finance students and investors.

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