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Determine the highest after-tax rate of return

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Question 1: Luke Heckman has asked you to analyze the following investment alternatives to determine the highest after-tax rate of return under the assumption that he is subject to a 32 percent marginal federal income tax and a 5 percent state income tax (disregard the AMT for this problem). Which bond should he purchase?

  1. A corporate bond with a 7 percent pre-tax return.
  2. An out-of-state municipal bond with a 5.75 percent pre-tax return.
  3. An in-state municipal bond with a 5.5 percent pre-tax return.

Reference no: EM132573235

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