Katie, a resident of Virginia, is considering purchasing a North Carolina bond that yields 4.6% before tax. She is in the 35% Federal marginal tax bracket and the 5% state marginal tax bracket. 

Katie is aware that State of Virginia bonds of comparable risk are yielding 4.5%. Virginia bonds are exempt from Virginia tax, but the North Carolina bond interest is taxable in Virginia. 

Which of the two options will provide the greater after-tax return to Katie? Katie can deduct any state taxes paid on her Federal income tax return. In your analysis, assume that the bond amount is $100,000.