EBK AUDITING & ASSURANCE SERVICES: A SY
EBK AUDITING & ASSURANCE SERVICES: A SY
10th Edition
ISBN: 9781259293245
Author: Jr
Publisher: MCGRAW HILL BOOK COMPANY
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Chapter 16, Problem 16.21MCQ
To determine

Introduction:

Dividends earned on investments are a steady stream of passive income. It is issued by companies during the fiscal year. It’s a token reward paid to the shareholders for investing in shares/equity of a company.

To select: The correct option.

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An investor is in the 24% tax bracket and lives in a state with no income tax. He is trying to decide which of two bonds to purchase. One is a(n) 9.03% corporate bond that is selling at par. The other is a municipal bond with a 6.44% coupon that is also selling at par. If all other features of these two bonds are comparable, which should the investor select? Why? Would your answer change if this were an in-state municipal bond and the investor lived in a place with high state income taxes? Explain. O A. The investor should select the corporate bond. Since the fully taxable equivalent yield of 8.47% is less than the 9.03% return on the corporate bond, the corporate issue offers a higher return and is the better buy. The decision very likely would change if this were an "in-state" municipal bond and the investor lived in a state with high income taxes. An "in-state" municipal bond would not only shield the investor from federal taxes but also from high state income taxes. OB. The…
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