Zeinab is very conservative with her money and has $100,000 to invest. She is evaluating two alternatives - a municipal bond issued by the state of Ohio that pays 4% interest and a bond issued by Sears Corporation that pay 14%. Zeinab is in the 35% marginal tax bracket and overall she pays an average 25% tax rate.

a) After taxes how much will each bond pay Zeinab per year?

b) What attributes of the bonds should Zeinab consider when evaluating these two investment alternatives? Which bond should Zeinab invest her money in? Why?

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