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Allison plans to invest $20,000 in either a corporate bond paying 5% or a tax-exempt bond with a 3.5% interest rate. The bonds have an

image text in transcribed Allison plans to invest $20,000 in either a corporate bond paying 5% or a tax-exempt bond with a 3.5% interest rate. The bonds have an equivalent level of risk. Allison has a 24% marginal tax rate and wants to maximize her after-tax earnings. Allison should: invest in the tax-exempt bond since its yield is more than the after-tax return on the corporate bond. invest in the corporate bond due to its higher stated interest rate. invest in the corporate bond because its after-tax earnings are more than the return on the tax-exempt bond. allocate his money equally between the two investments

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