Hunter is deciding between purchasing General Motors Corporate bonds and State of Michigan bonds.In either case, Hunter will invest $10,000.The corporate bonds pay 15% annually.Assuming Hunter's marginal tax rate is 34%, he will be indifferent to choosing either option if the state bonds pay an annual rate of:

Question

Quizplus · Accepted Answer

The correct answer is A because the after-tax return on the corporate bonds is 9.9% (15% * (1 - 34%)) and the state bonds must pay an annual rate of 5.1% to provide the same after-tax return.

Hunter Is Deciding Between Purchasing General Motors Corporate Bonds and State