Daniel Plans to Invest $20,000 in Either a Corporate Bond

Daniel plans to invest $20,000 in either a corporate bond paying 5% or a tax- exempt bond with a 4% interest rate. The bonds have an equivalent level of risk. Daniel has a 35% marginal tax rate and wants to maximize his after- tax earnings. Daniel should

A) allocate his money equally between the two investments.
B) invest in the tax- exempt bond since its yield is more than the after- tax return on the corporate bond.
C) invest in the corporate bond due to its higher stated interest rate.
D) invest in the corporate bond because its after- tax earnings are more than the return on the tax- exempt bond.