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Your bank has two checking account options, one pays tax-free interest at a rate of 3% per annum and the other pays taxable interest at a rate of 4.5% per annum. You are currently in a 24% marginal tax bracket. If you converted the tax-free interest rate to the comparable taxable interest rate you would find that:

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Answer:

The comparable tax rate is 3.95%, thus you should choose the 4.5% taxable account option.

Step-by-step explanation:

In order to convert the tax-free interest rate of 3% per year to the comparable taxable interest rate, one should consider that 3% is the interest rate after the marginal tax discount. If you are at the 24% marginal tax bracket, the comparable rate is:

[tex]r*(1-0.24)=0.03\\r=\frac{0.03}{0.76}\\r=0.0395\\r=3.95\%[/tex]

The comparable tax rate is 3.95%, thus you should choose the 4.5% taxable account option.

The comparable tax rate is 3.95%, so you should choose the 4.5% taxable account option.

calculation of the comparable tax rate:

Since the rate is 3% per annum, the other rate should be 4.5% and there is tax rate of 24%

So,

rate (1 - 24%) = 3%

rate = 3.95%

Learn more about the rate here: https://brainly.com/question/13021566

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