Elizabeth, an individual taxpayer, has a marginal tax rate on ordinary income of 32% and a tax rate on long-term capital gains of 15%. She has $100,000 that she wants to invest for the next 6 months, at which time she will liquidate the investment. She is considering three investment alternatives: (1) a corporate bond yielding an annual interest rate of 5% (so 2.5% over 6 months); (2) a municipal bond that pays and annual interest rate of 3% (so 1.5% over 6 months); (3) stock that will pay a dividend of $1000 and is expected to increase in value by 2% per year (so 1 percent after 6 months). Assume that Elizabeth can purchase the stock after the declaration date but before the record date, and that all interest and dividends will be received at the end of the 6 month period. Also assume that the income from the investment does not bump Elizabeth up to the 35% bracket.

1. (1 point) What is the after-tax return Elizabeth earns over the 6 month period if she invests in the corporate bond?
   1. 2.5%
   2. 2.125%
   3. 1.7%
   4. 2.0%

2. (1 point) What is the after-tax return Elizabeth earns over the 6 month period if she invests in the municipal bond?
   1. 1.5%
   2. 1.275%
   3. 1.02%
   4. 1.2%

3. (1 point) What is the after-tax return Elizabeth earns over the 6 month period if she invests in the stock?
4. 1. 0.68%
   2. 0.85%
   3. 2%
   4. 1.53%