An investor is comparing the following two bonds: a bond from ABC Corp which pays an interest rate of 9 percent per year and a municipal bond which pays an interest rate of 7.9 percent per year. The investor is in the 15 percent tax bracket. Which bond will give the investor a higher after tax interest rate and for which reason?

a). The ABC bond because it pays a 9 % interest rate, while the municipal pays 7.9%.

b). The ABC bond because it pays an equivalelnt after tax rate of 10.6%, while the municipal bond pays out an equivalent after tax rate of 9.3%.

c). The municipal bond because it pays an equivalent after tax rate of 9.3 percent, while the ABC bond pays out a 9 percent interest rate.

d). Themunicpal bond because it pays an equivalent after tax rate of 7.9%, while the ABC bond pays out an equivalent after tax rate of 7.65%.

e). None of the above is correct

Answer rating: 100% (QA)

After tax interest rate for ABC 9115 765 After tax ... View the full answer