Question

The yield on a taxable money market mutual fund earning 3.0 percent is equivalent to a ____ percent yield on a tax-exempt money market fund for a taxpayer in the 28 percent marginal tax bracket.

Answer 1

In order to calculate the yield after taxes to compare it to a tax-exempt money market fund we will need to subtract the taxes from the yield. The yield is 0.03 and taxes on that are 0.28. If you multiply those two you get 0.0084. If you subtract this from 0.03 you get 0.0216 which is equal to 2.16%.