Question

Suppose you’re evaluating three alternative MMMF investments. The first fund buys a diversified portfolio of municipal securities from across the country and yields 3.3 percent. The second fund buys only taxable, short-term commercial paper and yields 5.4 percent. The third fund specializes in the municipal debt from the state of New Jersey and yields 3 percent. You are a New Jersey resident, your federal tax bracket is 35 percent, and your state tax bracket is 8 percent. (Assume your state taxes do not affect your federal taxable income.) 1. Calculate the after-tax yield for each of the alternatives. (Do not round intermediate calculations. Enter your answers as a percent rounded to 2 decimal places.) 2. Which of these three MMMFs offers you the highest after-tax yield? Taxable Fund New Jersey Fund Municipal Fund

Answer 1

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