Assume All Investors Have a Choice Between Investing in Equity

Assume all investors have a choice between investing in equity that will offer a 10% return in the form of capital gains or investing in debt that will offer a 13% return in the form of interest
Income. Investor A pays taxes at the rate of 35%, and Investor B pays taxes at the rate of 20%
On ordinary income. Both pay taxes at the rate of 15% on capital gain income. Which type of
Investment should each investor make?

A) Investor A should invest in equity, which will offer him an 8.5% after-tax return. Investor B should invest in debt for an after-tax return of 9.75%.
B) Both should invest in equity since it is taxed at a lower rate.
C) Both should invest in the debt. After tax, this will offer Investor A a return of 8.45%, and Investor B will earn 9.75%. If they invested in equity, Investor A will earn only 5.525%
After taxes, and Investor B only 6.375%.
D) Both should invest in the debt. After tax, this will offer both investors an 11% return. If they invested in equity, Investor A will earn only 6.5% after taxes, and Investor B only
7.5%.