Dick Dowen is considering three investment opportunities: (1) A 4.5% city of Chicago bond that is tax
Question:
Dick Dowen is considering three investment opportunities:
(1) A 4.5% city of Chicago bond that is tax exempt at both state and federal levels.
(2) A 4.75% state of Illinois bond that is tax exempt at the federal level but taxable at the state level.
(3) A 6.7% McDonald’s corporate bond that is taxable at both the state and federal levels.
If the Illinois state tax rate is 6% and Dick’s marginal federal tax rate is 30%, which investment yields the highest after-tax return?
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Step by Step Answer:
1 Since there is no tax on the City of Chicago bond the aftertax return is 45 2 The State of ...View the full answer
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