Morris Is Considering Investing in Some Bonds

Morris is considering investing in some bonds. Morris is in the 32% tax bracket. His broker tells him about City of Fargo, North Dakota, bonds with a yield of 6%.

A) A U.S. Treasury bond paying 6% interest will have a greater after-tax yield than the City of Fargo bonds.
B) A U.S. Treasury bond paying 6% interest will have the same after-tax yield as the City of Fargo bonds.
C) The after-tax yield on City of Fargo bonds is 4.08% [(1.0 - .32) × 6%].
D) A taxable bond will have to pay 8.82% (6% ÷ .68) interest to provide an after-tax yield equal to the yield on the City of Fargo bonds.