Mr. Brown is in the 10% federal income tax bracket and wants to invest $8,000 in interest-earning assets. Mr. Black is in the 35% bracket and wants to invest $15,000. The current rate on a typical high-quality tax-exempt municipal bond is 5% and on a similar quality corporate bond is 6.5%. You are the financial advisor to both which investment would you recommend to each.

To determine the recommended investment for both Mr. Brown and Mr. Black, we need to calculate the after-tax income from each investment option.

For Mr. Brown:
1. Calculate the after-tax income from investing in a tax-exempt municipal bond:
a. Multiply the investment amount ($8,000) by the interest rate (5%) to find the pre-tax income: $8,000 * 0.05 = $400.
b. Since Mr. Brown is in the 10% federal income tax bracket, he will not owe any federal taxes on the interest income.
c. The after-tax income from the municipal bond is equal to the pre-tax income: $400.

2. Calculate the after-tax income from investing in a corporate bond:
a. Multiply the investment amount ($8,000) by the interest rate (6.5%) to find the pre-tax income: $8,000 * 0.065 = $520.
b. Since Mr. Brown is in the 10% federal income tax bracket, he will owe 10% of the pre-tax income in federal taxes: $520 * 0.10 = $52.
c. Calculate the after-tax income by subtracting the federal tax amount from the pre-tax income: $520 - $52 = $468.

Considering that the after-tax income ($400) from the tax-exempt municipal bond is higher than the after-tax income ($468) from the corporate bond, it is recommended for Mr. Brown to invest in the tax-exempt municipal bond.

For Mr. Black:
1. Calculate the after-tax income from investing in a tax-exempt municipal bond:
a. Multiply the investment amount ($15,000) by the interest rate (5%) to find the pre-tax income: $15,000 * 0.05 = $750.
b. Since Mr. Black is in the 35% federal income tax bracket, he will not owe any federal taxes on the interest income.
c. The after-tax income from the municipal bond is equal to the pre-tax income: $750.

2. Calculate the after-tax income from investing in a corporate bond:
a. Multiply the investment amount ($15,000) by the interest rate (6.5%) to find the pre-tax income: $15,000 * 0.065 = $975.
b. Since Mr. Black is in the 35% federal income tax bracket, he will owe 35% of the pre-tax income in federal taxes: $975 * 0.35 = $341.25.
c. Calculate the after-tax income by subtracting the federal tax amount from the pre-tax income: $975 - $341.25 = $633.75.

Considering that the after-tax income ($750) from the tax-exempt municipal bond is higher than the after-tax income ($633.75) from the corporate bond, it is recommended for Mr. Black to invest in the tax-exempt municipal bond.

In summary, it is recommended for Mr. Brown to invest in the tax-exempt municipal bond, while it is also recommended for Mr. Black to invest in the tax-exempt municipal bond.