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 these

Question

Quizplus · Accepted Answer

The after-tax rate of return is the same as the pre-tax rate because the interest from municipal bonds is tax exempt.

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