An investor is comparing the following two bonds: a bond from ABC Corp which pays an interest rate of 9 percent per year and a municipal bond which pays an interest rate of 7.9 percent per year.The investor is in the 15 percent tax bracket.Which bond will give the investor a higher after-tax interest rate and for which reason?
A) The ABC bond because it pays a 9 percent interest rate,while the municipal bond only pays 7.9 percent .
B) The ABC bond because it pays an equivalent after-tax rate of 10.6 percent,while the municipal bond pays out an equivalent after-tax rate of 9.3 percent.
C) The municipal bond because it pays an equivalent after-tax rate of 9.3 percent,while the ABC bond pays out a 9 percent interest rate.
D) The municipal bond because it pays an equivalent after-tax rate of 7.9 percent,while the ABC bond pays out an equivalent after-tax rate of 10.6 percent.
E) None of the above is correct.
Correct Answer:
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