MrHayes Plans to Pay $100,000 for One of Three Investment

question 7

Multiple Choice

Mr.Hayes plans to pay $100,000 for one of three investment alternatives that have the same risk.The income from investment 1 would be taxed at Mr.Hayes' 25% regular tax rate,the income from investment 2 would be taxed at a 15% preferential rate,and the income from investment 3 is tax-exempt.The investments offer the following before-tax yields. Investment 1: 9.0%
Investment 2: 7.5%
Investment 3: 6.0%
Which investment should Mr.Hayes select?

• A)Investment 1
• B)Investment 2
• C)Investment 3
• D)Mr.Hayes is neutral between investment 2 and investment 3.

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Definitions:

Principal's Relationship

A legal concept that describes the relationship between a principal (one who grants authority) and an agent (one who acts on the principal's behalf).

Solely

Refers to something done exclusively by one entity or individual, without involvement from others.

Principal's Business

The main activities and operations undertaken by a business or organization to fulfill its objectives and generate revenue.

Interest

The cost of borrowing money, typically expressed as an annual percentage rate, or the income earned from lending money.