James invests $100,000 in a city of Athens bond that pays 8% interest. Alternatively, James...
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James invests $100,000 in a city of Athens bond that pays 8% interest. Alternatively, James could have invested the $100,000 in a bond recently issued by HighTech, Inc. that pays 10% interest with similar risk as the city of Athens bond. Assume that Jamess marginal tax rate is 25%. Which bond should James should choose and why?
((Multiple Choice))
The HighTech, Inc. bond because it earns a higher after-tax rate of return.
The city of Athens bond because it earns a higher pre-tax rate of return.
James should be indifferent between the two bonds.
The city of Athens bond because it earns a higher after-tax rate of return.
The HighTech, Inc. bond because it earns a higher pre-tax rate of return.
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