Jack has $1,000 to invest. he has a choice between municipal bonds with an interest rate of 4% or corporate bonds with an interest rate of 6%. jack has a marginal tax rate of 25%. given this information, jack should invest in the bonds. the after-tax rate of return on the municipal bonds is % and the after tax rate of return on the corporate bonds is %. the difference in the rates of return is known as taxes.

Ans. The after-tax rate of return on the municipal bonds is 3% and the after tax rate of return on the corporate bonds is 4.5%

Explanation:

Hi, the formula to find the after-tax rate of return of any taxable income is as follows.

Therefore, in the case of the municipal bond.

So, the after-tax rate of return of the municipal bond is 3%.

And for the corporate bond is.

And the after-tax rate of return of the corporate bond is 4.5%.

It means that taxes on municipal bonds are:

In the case of municipal taxes:

1% taxes for municipal bonds

In the case of corporate taxes:

1.5% taxes for corporate bonds

Best of luck.

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