Curtis invests $250,000 in a city of Athens bond that pays 7% interest. Alternatively, Curtis 8c3o)uld have invested the $250,000 in a bond recently issued by Initech, Inc. that pays 9% interest with similar risk as the city of Athens bond. Assume that Curtis' marginal tax rate is 28%.What is Curtis' after-tax rate of return on the city of Athens bond?
A) 7.00%
B) 1.96%
C) 2.52%
D) 9.00%
E) None of the choices are correct.

Question

Quizplus · Accepted Answer

The city of Athens bond is typically a municipal bond, which is often tax-exempt. Therefore, Curtis' after-tax rate of return on the city of Athens bond is the same as the stated interest rate, 7%.

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