Clark,a single taxpayer with expected taxable income of $190,000,needs your advice on an investment decision.Clark wants to invest $10,000 in long-term bonds.Clark can obtain a 6% return by investing in 10-year Ford Motors' bonds.What is the minimum interest rate that Clark should demand from an investment in State of Tennessee bonds of identical risk and duration?

Question

Quizplus · Accepted Answer

The minimum interest rate that Clark should demand from an investment in State of Tennessee bonds of identical risk and duration is 4.0%. This is because the Ford Motors' bonds have a 6% return, and the State of Tennessee bonds are of identical risk and duration. Therefore, the State of Tennessee bonds should have a return that is at least as high as the Ford Motors' bonds.

Clark,a Single Taxpayer with Expected Taxable Income of $190,000,needs Your