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Suppose that a bond is granted a favorable tax treatment such that the interest and any capital gain from this bond would not be taxed.

Suppose that a bond is granted a favorable tax treatment such that the interest and any capital gain from this bond would not be taxed. Suppose that the marginal tax rate on otherwise equivalent taxable bonds is 25% and the appropriate discount rate is 7%. What is the after-tax discount rate?
a. 5.25%
b. 5.35%
c. 5.65%
d. 5.75%

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