Security A is a fully taxable security that earns 5% annually. Security B is a tax-exempt municipal security. If a short-term investment manager uses a tax rate of 33%, what yield must security B earn such that the investment manager would be indifferent between securities A and B?

Answer

2.5%

3.35%

4.67%

7.46%

The effective cost of commercial paper is 6%, and the effective cost of a bank credit line is also 6%. All other considerations aside, the treasurer should:

Answer

		finance with the commercial paper
		finance with the bank credit line
		be indifferent to the commercial paper or the credit line
		wait for interest rates to change before making a decision