Suppose you are an investor facing a choice between three investments that are identical in every way except in terms of their rates of return and taxability.Which investment provides the highest after-tax return?
Investment A:$\quad $ interest rate 10 percent, tax rate 40 percent of interest income.
Investment B: $\quad $interest rate 8 percent, tax rate 25 percent of interest income.
Investment C: $\quad $interest rate 6.5 percent, tax rate 0 percent.
Investment D: $\quad $interest rate 5 percent, tax rate 1 percent.

Question

Suppose you are an investor facing a choice between three investments that are identical in every way except in terms of their rates of return and taxability.Which investment provides the highest after-tax return?
 Investment A:$\quad $ interest rate 10 percent, tax rate 40 percent of interest income.
Investment B: $\quad $interest rate 8 percent, tax rate 25 percent of interest income.
Investment C: $\quad $interest rate 6.5 percent, tax rate 0 percent.
Investment D: $\quad $interest rate 5 percent, tax rate 1 percent.

Quizplus · Accepted Answer

Investment C offers a 6.5 percent interest rate with no taxes, resulting in a 6.5 percent after-tax return, which is higher than the after-tax returns of the other investments when their respective taxes are applied.

Suppose You Are an Investor Facing a Choice Between Three \quad

Suppose You Are an Investor Facing a Choice Between Three $\quad$