1.Why might the BTROR on a tax -favored investment be higher
than the BTROR on a fullytaxable investment even though implicit tax theory
says that it should be lower?
2. Tax-Exe mpt Bond. Laura, who is in the 35 % tax bracket,
notices that tax -exempt municipal bonds are yielding a 7% return . What
before-tax rate of return on a fully-taxab le bond must Laura obtain to make
her prefer the taxable bond over the tax – exempt bond?