Problem:
After graduating Brown, you get hired for financially lucrative job, earning $100,000 in taxable income a year. However, your little brother who graduated from University of Michigan decided to pursue his passion for journalism which he loves, but only earns $38,000 per year in taxable income. You are both single, so the same federal tax brackets for 2023 apply to both of you. You also both live in Washington so there is no state income tax. Taxable income ($) Tax rate Up to 11,000 10% 11,001 - 44,725 12% 44,726 - 95,375 22% 95,376 - 182,100 24% 182,101 - 231,250 32% 231,250 - 578,125 35% 578,126 or higher 37% © 2024 Sylvia Kuo. All rights reserved. This material may not be reproduced, displayed, modified or distributed without the express prior written permission of the copyright holder. For permission, contact Your parents decide to gift both of you some money to invest in bonds. Suppose corporate bonds offer an 9% yield, while municipal bonds offer an 8% yield. What must the municipals offer for you to prefer them to the corporate bonds? What about for your brother? Given the actual yields for these bonds, what is your best choice?