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Which bond should an investor with a tax rate of

Question : Which bond should an investor with a tax rate of : 8085

Which bond should an investor with a tax rate of 28% invest in? Bond A is from a tax-exempt organization and carries an interest rate of 5%. Bond B is from a for-profit organization and pays 8%. (When interest from a for-profit organization is taxed, the after tax interest income for the bond holder is calculated as (interest times (1 - tax rate). For example, if the tax rate is 40% and the interest pre-tax is 10%, the after-tax interest is 6%. We do not need to apply this calculation to tax-free interest from non-profit organizations.

1. Bond A

2. Bond B

3. It doesn't matter

Which bond should an investor with a tax rate of 28% invest in? Bond A is from a tax-exempt organization and carries an interest rate of 5%. Bond B is from a for-profit organization and pays 8%. (When interest from a for-profit organization is taxed, the after tax interest income for the bond holder is calculated as (interest times (1 - tax rate). For example, if the tax rate is 40% and the interest pre-tax is 10%, the after-tax interest is 6%. We do not need to apply this calculation to tax-free interest from non-profit organizations.

1. Bond A

2. Bond B

3. It doesn't matter

Solution
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Finance 10 Months Ago 112 Views
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