Sally Is Choosing Between Two Bonds Both of Which Mature

question 87

Multiple Choice

Sally is choosing between two bonds both of which mature in 15 years and have the same level of risk. Bond A is a municipal bond that yields 5.75%. Bond B is a corporate bond that yields 7.75%. If Sally is in the 28% tax bracket, which bond should she select and why?

• A) Sally should select Bond A because its interest income is not taxable.
• B) Sally will be indifferent between Bond A and B since the taxable equivalent yield of Bond A equals the yield of Bond B.
• C) Sally should select Bond A because its TEY is greater than the yield of Bond B.
• D) Sally should select Bond B because the TEY of Bond A is less than the yield of Bond B.

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Definitions:

Nonmaterial Mind

A philosophical concept suggesting that the mind or consciousness is not purely physical or biological in nature, often discussed in the context of dualism.

Materialism

Philosophical position that behavior can be explained as a function of the nervous system without recourse to the mind.

Brain Workings

The complex processes and functions of the brain, including thought, emotion, and motor control.

Neuroscientists

Scientists specialized in the study of the nervous system and brain, working to understand its structure, functions, and disorders.