Curtis invests $250,000 in a city of Athens bond that pays 7% interest.Alternatively,Curtis could 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's marginal tax rate is 28%. What is Curtis's after-tax rate of return on the city of Athens bond?
A) 1.96%
B) 2.52%
C) 7.00%
D) 9.00%
E) None of the choices are correct.

Question

Quizplus · Accepted Answer

Interest from municipal bonds like the city of Athens bond is typically tax-exempt, so Curtis's after-tax rate of return on the city of Athens bond is the same as the stated interest rate, which is 7.00%.

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