Assume That a Law Is Passed That Allows Investors to Exclude

question 29

Multiple Choice

Assume that a law is passed that allows investors to exclude 50% of interest income earned on corporate bond investments from federal taxation. All else equal, which of the following is a
Likely result?

• A)The market values of corporate bonds will increase.
• B)The overall market value of corporate equity will increase.
• C)The cost of capital for all corporations will increase.
• D)All of the above are likely to occur.

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