If an investor has a tax rate on interest income of 25% and the inflation rate is 4%, which bond has the lowest expected after-tax real interest rate? (a) A Treasury bond paying 9% (b) A corporate bond paying 8% (c) A Treasury bond paying 7% (d) A municipal bond paying 6% Answer: C Why is the answer C not D?

If an investor has a tax rate on interest income of 25% and the inflation rate is 4%, which bond has the lowest expected after-tax real interest rate? (a) A Treasury bond paying 9% (b) A corporate bond paying 8% (c) A Treasury bond paying 7% (d) A municipal bond paying 6% Answer: C Why is the answer C not D?

ENGR.ECONOMIC ANALYSIS

14th Edition

ISBN:9780190931919

Author:NEWNAN

Publisher:NEWNAN

Chapter1: Making Economics Decisions

Section: Chapter Questions

Problem 1QTC

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Question

If an investor has a tax rate on interest income of 25% and the inflation rate is 4%, which bond has the lowest expected
after-tax real interest rate?
(a) A Treasury bond paying 9%
(b) A corporate bond paying 8%
(c) A Treasury bond paying 7%
(d) A municipal bond paying 6%
Answer: C
Why is the answer C not D?

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