Suppose you're evaluating three alternative MMMF investments. The first fund buys a diversified portfolio of municipal securities from across the country and yields 3.2 percent.
The second fund buys only taxable, short-term commercial paper and yields 5.4 percent. Your federal income tax rate is 35 percent.
The third fund specializes in the municipal debt from the state of New Jersey and yields 3.4 percent. Which MMMF offers you the highest yield if you are a resident of Texas, which has no state income tax?
1. Calculate the return for a resident of Texas 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.)
Municipal Fund %
Taxable Fund %
New Jersey Municipal Fund %
2. Which MMMF offers you the highest yield if you are a resident of Texas, which has no state income tax?
Municipal Fund
New Jersey Fund
Taxable Fund