mr. brown is in the 10-percent federal income tax bracket and wants to invest $8000 in interest-earning assests. Mr. Black is in the 35-percent bracket and wants to invest $15,000 . The current rate on a typical high-quality tax-exempt municipal bond is 5 percent and on a similar quality corporate bond is 6.5 percent. recommend investment

On the corporate bond, Mr. Black will earn and keep (0.65)*6.5% = 4.225% interest after taxes and Mr. Brown will earn and keep (0.90)6.5% = 5.85% interest after taxes.

The 5% muni is a better investment for Mr. Black, assuming comparable bond quality and maturity. The 6.5% corporate is a better investment for Mr. Brown.

To determine the better investment option for Mr. Brown and Mr. Black, let's calculate the after-tax earnings from the interest on each investment option.

For Mr. Brown:
1. Tax-exempt municipal bond:
- Interest rate: 5%
- Tax bracket: 10%
- After-tax return = (1 - Tax rate) * Interest rate = (1 - 0.10) * 0.05 = 0.045 or 4.5%
- After-tax earnings = After-tax return * Investment amount = 0.045 * $8,000 = $360

2. Corporate bond:
- Interest rate: 6.5%
- Tax bracket: 10%
- After-tax return = (1 - Tax rate) * Interest rate = (1 - 0.10) * 0.065 = 0.0585 or 5.85%
- After-tax earnings = After-tax return * Investment amount = 0.0585 * $8,000 = $468

For Mr. Black:
1. Tax-exempt municipal bond:
- Interest rate: 5%
- Tax bracket: 35%
- After-tax return = (1 - Tax rate) * Interest rate = (1 - 0.35) * 0.05 = 0.0325 or 3.25%
- After-tax earnings = After-tax return * Investment amount = 0.0325 * $15,000 = $487.50

2. Corporate bond:
- Interest rate: 6.5%
- Tax bracket: 35%
- After-tax return = (1 - Tax rate) * Interest rate = (1 - 0.35) * 0.065 = 0.04225 or 4.225%
- After-tax earnings = After-tax return * Investment amount = 0.04225 * $15,000 = $633.75

Based on the calculations, the recommended investment option for Mr. Brown would be the corporate bond, which would result in after-tax earnings of $468. For Mr. Black, the recommended investment option would also be the corporate bond, which would yield after-tax earnings of $633.75.

To recommend the best investment for Mr. Brown and Mr. Black, we need to compare the after-tax returns on the different investment options. Here's how we can calculate that:

1. For Mr. Brown:
a. Calculate the after-tax return on a municipal bond: Multiply the tax-exempt rate (5%) by (1 - the tax bracket percentage) to get the after-tax return. In this case, it would be 5% * (1 - 0.10) = 4.5%.
b. Calculate the after-tax earnings on the municipal bond: Multiply the after-tax return by the investment amount. In this case, it would be 4.5% * $8,000 = $360.

2. For Mr. Black:
a. Calculate the after-tax return on a corporate bond: Multiply the corporate bond rate (6.5%) by (1 - the tax bracket percentage) to get the after-tax return. In this case, it would be 6.5% * (1 - 0.35) = 4.23%.
b. Calculate the after-tax earnings on the corporate bond: Multiply the after-tax return by the investment amount. In this case, it would be 4.23% * $15,000 = $634.50.

Based on these calculations, the recommended investment for Mr. Brown would be the tax-exempt municipal bond, which would provide an approximate after-tax earnings of $360. On the other hand, the recommended investment for Mr. Black would be the corporate bond, which would provide an approximate after-tax earnings of $634.50.