Question
You are currently deciding whether to purchase a 6-month corporate bond with a yield to maturity of 6.5% or to purchase a 6-month municipal bond
You are currently deciding whether to purchase a 6-month corporate bond with a yield to maturity of 6.5% or to purchase a 6-month municipal bond with a yield to maturity of 5.0%. If your marginal tax rate is 24%, which bond should you invest in (all other things held equal)?
a. You should invest in the corporate bond because it has an after-tax yield of 6.5% which is higher than the after-tax yield on the municipal bond.
b. You should invest in the corporate bond because it has an after-tax yield to maturity of 4.94%, which is higher than the after-tax yield on the municipal bond.
c.You should invest in the municipal bond because it has an after-tax YTM of 4.25%, which is higher than the after-tax yield on the corporate bond.
d. You should invest in the municipal bond because it has an after-tax YTM of 4.0%, which is higher than the after-tax yield on the corporate bond.
e.You should invest in the municipal bond because it has an after-tax YTM of 5.0%, which is higher than the after-tax yield on the corporate bond.
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Deals From Hell M And A Lessons That Rise Above The Ashes
Authors: Robert F. Bruner, Arthur Levitt
1st Edition
0470452595, 978-0470452592
