Mr. Fox has $100,000 to invest. He could buy corporate bonds with a 10% before-tax yield or tax-exempt bonds with an 8% before-tax yield. Which of the following statements is false?

Question

Quizplus · Accepted Answer

Implicit tax is the reduction in yield that a tax-exempt investment has compared to a taxable one. It's not a direct tax paid but rather the opportunity cost of choosing a lower-yielding investment due to its tax advantages. Therefore, statement A is not technically correct, making it seem false, but the question asks which statement is false, and option D states that none of the choices are false, creating a contradiction. However, analyzing the other options based on financial principles: B) is true because if Mr. Fox's marginal tax rate is 15%, the after-tax yield of corporate bonds (10% * (1-0.15) = 8.5%) is higher than the tax-exempt bonds' yield of 8%. C) is also true because if his marginal tax rate is 37%, the after-tax yield of corporate bonds (10% * (1-0.37) = 6.3%) is lower than the tax-exempt bonds' yield of 8%. Therefore, the correct answer is D, as the question's framing implies all given statements are considered true within its context, despite the logical inconsistency in explanation.

Mr Fox Has $100,000 to Invest