Question: Tammy, a resident of Oregon, is considering purchasing a $100,000 California bond that yields 4.6% before tax. She is in the 35% Federal marginal tax bracket and the 5% state marginal tax bracket. She is aware that State of Oregon bonds of comparable risk are yielding 4.5%. However, the Oregon bonds are exempt from Oregon tax, but the California bond interest is taxable in Oregon. Tammy can deduct any state taxes paid on her Federal income tax return. In your analysis, assume the bond amount is $100,000.
If required, round your computations and answers to the nearest dollar. Determine the after tax income from each bond.
Which of the two options will provide the greater after-tax return to Tammy?
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