The Carey State Bank has purchased a bank-qualified municipal bond with a yield of 6%. This bank has had to borrow funds to make this purchase at a cost of 5.35%. This bank is in the 40% tax bracket. What is the net after-tax return on this bank-qualified municipal bond? Under IRS rules if a muni bond is bank qualified then 80% of the interest expense associated with funding the investment is tax deductible. A. none of the responses are correct B. 2.85% C. 2.36% D.6.00% E. 2.43%
The Carey State Bank has purchased a bank-qualified municipal bond with a yield of 6%. This bank has had to borrow funds to make this purchase at a cost of 5.35%. This bank is in the 40% tax bracket. What is the net after-tax return on this bank-qualified municipal bond? Under IRS rules if a muni bond is bank qualified then 80% of the interest expense associated with funding the investment is tax deductible. A. none of the responses are correct B. 2.85% C. 2.36% D.6.00% E. 2.43%
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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The Carey State Bank has purchased a bank-qualified municipal bond with a yield of 6%. This bank has had to borrow funds to make this purchase at a cost of 5.35%. This bank is in the 40% tax bracket. What is the net after-tax return on this bank-qualified municipal bond? Under IRS rules if a muni bond is bank qualified then 80% of the interest expense associated with funding the investment is tax deductible.
A. none of the responses are correct
B. 2.85%
C. 2.36%
D.6.00%
E. 2.43%
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