Elizabeth is trying to decide whether to buy a corporate bond that pays a 6.5% coupon or a muni bond that pays a 4.8% coupon. the bonds are comparable risk and maturity. if she has a 24% marginal tax rate, which bond should she buy and why? buy the corporate bond because its yield is greater than the muni bond yield buy the muni because she can avoid paying taxes on the interest. buy the corporate bond because her after-tax bond yield on the corporate bond is greater than the muni yield. she should be indifferent between the two bonds because they are both good investments. buy the muni because her return on the muni is greater than her after-tax return on the corporate bond
Elizabeth is trying to decide whether to buy a corporate bond that pays a 6.5% coupon or a muni bond that pays a 4.8% coupon. the bonds are comparable risk and maturity. if she has a 24% marginal tax rate, which bond should she buy and why? buy the corporate bond because its yield is greater than the muni bond yield buy the muni because she can avoid paying taxes on the interest. buy the corporate bond because her after-tax bond yield on the corporate bond is greater than the muni yield. she should be indifferent between the two bonds because they are both good investments. buy the muni because her return on the muni is greater than her after-tax return on the corporate bond
Essentials Of Investments
11th Edition
ISBN:9781260013924
Author:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Publisher:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Chapter1: Investments: Background And Issues
Section: Chapter Questions
Problem 1PS
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Elizabeth is trying to decide whether to buy a corporate bond that pays a 6.5% coupon or a muni bond that pays a 4.8% coupon. the bonds are comparable risk and maturity. if she has a 24% marginal tax rate, which bond should she buy and why?
buy the corporate bond because its yield is greater than the muni bond yield
buy the muni because she can avoid paying taxes on the interest.
buy the corporate bond because her after-tax bond yield on the corporate bond is greater than the muni yield.
she should be indifferent between the two bonds because they are both good investments.
buy the muni because her return on the muni is greater than her after-tax return on the corporate bond
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