Jackson has the choice to invest in city of Mitchell bonds or Sundial, Inc. corporate bonds th8a8t)pay10% interest. Jackson is a single taxpayer who earns $55,000 annually. Assume that the city ofMitchell bonds and the Sundial, Inc. bonds have similar risk.Assume the original facts as given except that Jackson is a head of household taxpayer and the city of Mitchell pays interest of 7.8%. How would you advise Jackson to invest hismoney?
A) Invest in Sundial, Inc. bonds because their explicit tax is greater than the implicit tax on city of Mitchell bonds.
B) Invest in city of Mitchell bonds because their implicit tax is greater than the explicit tax on Sundial, Inc. bonds.
C) Invest in city of Mitchell bonds because their implicit tax is less than the explicit tax on Sundial, Inc. bonds.
D) Invest in Sundial, Inc. bonds because their explicit tax is less than the implicit tax on city of Mitchell bonds.
E) None of the choices are correct.

Question

Quizplus · Accepted Answer

The city of Mitchell bonds are likely tax-exempt, meaning the implicit tax (the lower interest rate due to tax exemption) is less than the explicit tax Jackson would pay on the higher interest from Sundial, Inc. bonds.

Jackson Has the Choice to Invest in City of Mitchell