Taxable equivalent return of the tax-free municipal bond

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Reference no: EM132063419

1. A tax-free municipal bond promises a return of 3.5%. A taxable bond promises a return of 4.5%. If your tax bracket is 20%, what is the taxable equivalent return of the tax-free municipal bond?

4.24%

2.8%

3.6%

4.38%

2. You have $50,000 to invest and are considering a portfolio which includes one risk-free asset and two risky assets (X and Y). The risk-free return is 5% and the returns for X and Y are 25% and 12% respectively. The optimal risky asset combination is 70% X and 30% Y. If you want a target return of 18% from this portfolio, how much money should you invest in asset Y?

12,111.80

28,260.87

9,627.32

16.517.92

31,271.08

Reference no: EM132063419

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