Curtis invests $250,000 in a city of Athens bond that pays 7 percent interest.Alternatively, Curtis could have invested the $250,000 in a bond recently issued by Initech, Inc.that pays 9 percent interest with similar risk as the city of Athens bond.Assume that Curtis's marginal tax rate is 24 percent. What is Curtis's after-tax rate of return on the city of Athens bond?
A)5.32 percent
B)6.84 percent
C)7.00 percent
D)9.00 percent
E)None of the choices are correct

Question

Quizplus · Accepted Answer

The city of Athens bond is typically tax-exempt, so the after-tax rate of return is the same as the stated interest rate, which is 7 percent.

Curtis Invests $250,000 in a City of Athens Bond That