alternative MMMF investments
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 2.8 percent. The second fund buys only taxable, short-term commercial paper and yields 5.1 percent. The third fund specializes in the municipal debt from the state of New Jersey and yields 2.5 percent. If you are a New Jersey resident, your federal tax bracket is 35 percent, and your state tax bracket is 8 percent.
| 1. | Calculate the aftertax yield for each of the alternatives. (Do not round intermediate calculations. Enter your answers as a percent rounded to 2 decimal places. Omit the “%” sign in your response.) |
| Aftertax Yield | |
| Municipal fund | % |
| Taxable fund | % |
| New Jersey municipal fund | % |
| 2. | Which of these three MMMFs offers you the highest aftertax yield?Top Answer |
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