Suppose youre evaluating three alternative MMMF investments. The first fund buys a diversified portfolio of...
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Suppose youre evaluating three alternative MMMF investments. The first fund buys a diversified portfolio of municipal securities from across the country and yields 3 percent. The second fund buys only taxable, short-term commercial paper and yields 5.2 percent. The third fund specializes in the municipal debt from the state of New Jersey and yields 2.7 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.)
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2. Which of these three MMMFs offers you the highest after-tax yield?
Municipal Fund
Taxable Fund
New Jersey Fund
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