# appendix3a - Web Appendix 3A The Federal Income Tax System...

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2 Answers and Solutions Appendix 3A The Federal Income Tax System Solutions to Problems 3A-1 Married taxable income = \$102,000; Federal taxes = ? Taxes = \$8,000.00 + (\$102,000 \$58,100)0.25 = \$8,000.00 + (\$43,900)0.25 = \$18,975.00. 3A-2 Corporate yield = 9%; T = 35%; AT yield = ? AT yield = 9%(1 T) = 9%(0.65) = 5.85%. 3A-3 Corporate bond yields 8%; Municipal bond yields 6%. bond taxable on tax yield - pre Equivalent = ) T (1 muni on Yield 8% = ) T 1 ( % 6 0.08 0.08T = 0.06 -0.08T = -0.02 T = 25%. 3A-4 Compare the after-tax returns of the two investments: Corporate bond = 0.09(1 0.35) = 0.0585 = 5.85%. Municipal bond = 0.07 = 7%; therefore, choose the municipal bond over the corporate bond.
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