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Two investors are trying to determine which bond to buy. Investor 1 is in a 38 percent Federal tax bracket and pays 7 percent SC
Two investors are trying to determine which bond to buy.
Investor 1 is in a 38 percent Federal tax bracket and pays 7 percent SC state taxes.
Investor 2 is in a 18 percent Federal tax bracket and pays 7 percent SC state taxes.
Their bond choices are
- a 5 year AAA rated bond, with a 7.6 percent coupon rate issued by ABC Corporation
- a 5 year AAA rated bond, with a 5.2 percent coupon rate issued by SC Dept of Education
- a 5 year AAA rated bond, with a 4.3 percent coupon rate issued by US Treasury Dept
a. Which bond should investor 1 buy? Explain and prove mathematically
b. Which bond should investor 2 buy? Explain and prove mathematically
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