Question of the Week
correct answer is d)
The interest from U.S. Treasury Bonds is exempt from state and local taxes, however; it is subject to federal taxes. When deciding to invest in a taxable versus a non-taxable investment, you must compute the tax-exempt yield.
To do this you take the taxable-equivalent yield multiplied by (1-Marginal tax rate) which equals the tax-exempt yield. [0.07 x (1- 0.30) = .049 or 4.9%].
A tax-exempt investment is only more attractive if it yields higher than 4.9%.