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