Asked by Emily Esparza on May 09, 2024
Verified
The relevant tax rate for investment decisions is the:
A) average rate.
B) lowest rate.
C) marginal rate.
D) effective rate.
Marginal Rate
The rate at which one additional unit of a variable is accounted for in the cost-benefit analysis, commonly used in the context of taxation and production.
Tax Rate
The fraction of income or profits that an individual or company needs to pay to the government as tax.
Investment Decisions
The process of deciding where to allocate resources in order to generate the highest possible returns.
- Analyze the returns of municipal versus corporate bonds, considering their disparate tax implications.
Verified Answer
MM
Malek MasonMay 13, 2024
Final Answer :
C
Explanation :
The relevant tax rate for investment decisions is the marginal rate, which is the rate at which the additional dollar of income is taxed. This is because investors are concerned with the tax liability on additional income earned from an investment, and the marginal rate reflects the impact of taxes on that additional income. The average rate, lowest rate, and effective rate are unlikely to accurately reflect the tax impact on additional income earned from an investment decision.
Learning Objectives
- Analyze the returns of municipal versus corporate bonds, considering their disparate tax implications.