Question
Cooley has $150,000 that it plans to invest in marketable securities. He is choosing between Ford bonds which yield 9%, IBM bonds which yield 8%,
Cooley has $150,000 that it plans to invest in marketable securities. He is choosing between Ford bonds which yield 9%, IBM bonds which yield 8%, and State of Colorado municipal bonds which yield 7%. Cooley's average tax rate is 20%, and marginal tax rate is 25%. What is the after-tax rate of return of the highest yield security?
a) assume that Cooley is qualified for tax exemption on interest income from Colorado municipal bonds.
Highest yield security is:
Circle one: FORD IBM COLORADO
After-tax return = ___________ %
b) Assume that Cooley is NOT qualified for tax exemption on interest income from Colorado municipal bonds.
Highest yield security is:
Circle one: FORD IBM COLORADO
After-tax return = ____________ %
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