Tonya, a Virginia resident, inherited a $100,000 State of Virginia bond this year. Her marginal Federal income tax rate is 35%, and her marginal state tax rate is 5%. The Virginia bond pays 3.3% interest, which is not subject to Virginia income tax. Alternatively, Tonya can purchase a corporate bond of comparable risk that will yield 5.2% or a U.S. government bond that pays 4.6% interest. Tonya does not itemize her deductions.
Which investment provides the greatest after-tax yield?