An investor lives in a state with a 4% income tax rate. Her federal income tax...

Transcribed Image Text:

An investor lives in a state with a 4% income tax rate. Her federal income tax bracket is 35%. She wants to invest in one of two bonds that are similar in terms of risk (and both bonds currently sell at par value). The first bond is fully taxable and offers a yield of 10.14%. The second bond is exempt from both state and federal taxes and offers a yield of 7.20%. In which bond should she invest? The after-tax yield of the first bond is %. (Round to two decimal places.) The after-tax yield of the second bond is %. (Round to two decimal places.) In which bond should she invest? (Select the best choice below.) OA. She should invest in both bonds since they both have the same after-tax yield of 10.14%. B. She should invest in the first bond with the before-tax yield of 10.14% and the after-tax yield of 6.33%. OC. She should invest in neither bond since the tax rates are too high. D. She should invest in the second bond with the before- and after-tax yield of 7.20%. An investor lives in a state with a 4% income tax rate. Her federal income tax bracket is 35%. She wants to invest in one of two bonds that are similar in terms of risk (and both bonds currently sell at par value). The first bond is fully taxable and offers a yield of 10.14%. The second bond is exempt from both state and federal taxes and offers a yield of 7.20%. In which bond should she invest? The after-tax yield of the first bond is %. (Round to two decimal places.) The after-tax yield of the second bond is %. (Round to two decimal places.) In which bond should she invest? (Select the best choice below.) OA. She should invest in both bonds since they both have the same after-tax yield of 10.14%. B. She should invest in the first bond with the before-tax yield of 10.14% and the after-tax yield of 6.33%. OC. She should invest in neither bond since the tax rates are too high. D. She should invest in the second bond with the before- and after-tax yield of 7.20%.