3. A bank has two investment options to chose from for short term investment: Option A:...

  

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3. A bank has two investment options to chose from for short term investment: Option A: A money market security issued by a multinational corporation with a face value of $2000 with 120 days to maturity to be traded for $1850. Option B: A 60-day tax exempted government bill with a face value of $2000 to be traded for $1950. The corporate tax rate on bank earnings is 40%. Which security would you chose based on the after tax YTM return? Justify your answer by showing your appropriate calculations. (10 marks) 3. A bank has two investment options to chose from for short term investment: Option A: A money market security issued by a multinational corporation with a face value of $2000 with 120 days to maturity to be traded for $1850. Option B: A 60-day tax exempted government bill with a face value of $2000 to be traded for $1950. The corporate tax rate on bank earnings is 40%. Which security would you chose based on the after tax YTM return? Justify your answer by showing your appropriate calculations. (10 marks)

Answer rating: 100% (QA)

To determine which security the bank should choose based on the aftertax yield to maturity YTM retur... View the full answer