Cliff Clarkson Is 70 Years Old and Wants to Diversify

question 113

Essay

Cliff Clarkson is 70 years old and wants to diversify his investment portfolio.He must decide if he should invest in tax-free municipal bonds or in corporate bonds.The tax-free bonds are highly rated and pay 4.5%.The corporate bonds are more speculative and pay 6.5%
a.If Cliff is in the 25% tax bracket,what is the taxable equivalent yield for the municipal bond?
b.If you were Cliff,would you choose the municipal bonds or the corporate bonds?
Justify your answer.

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Definitions:

Multi-tasking

The ability to perform more than one task or activity simultaneously, though often leading to a decrease in performance or quality in the tasks.

Encoding

The process by which information is transformed into a format that can be stored in memory.

Storage

In cognitive psychology, the retention of information or experiences in the brain for later retrieval, an essential component of the memory process.

Retrieval

The process of accessing and recalling information or memories from one's mind.