Martin Is Trying to Decide Which One of the Following

question 27

Multiple Choice

Martin is trying to decide which one of the following bonds he should purchase. All the bonds have the same maturity date and all have approximately the same level of risk. The general level of interest rates is declining. Martin is in the 33 percent federal income tax bracket and the 6 percent state income tax bracket. The municipal bonds are from his home state. Which bond should Martin purchase if he wishes to hold it for the long term?

• A) bond A because it has the highest yield and is unlikely to be called when rates are declining
• B) bond B because it has the highest after tax yield and is unlikely to be called when rates are declining
• C) bond C because bond D is likely to be called
• D) bond D because it has the highest after tax yield and is unlikely to be called when rates are declining

---

Definitions:

Optimal Stimulation

A psychological theory proposing that individuals seek an optimal level of arousal, with too little leading to boredom and too much resulting in stress.

Arousal Theory

The theory that optimal performance and psychological arousal are related in a way that differs as a function of the individual and the task.

Yerkes-Dodson Law

A theory suggesting there is an optimal level of arousal for performance, and that too little or too much arousal can negatively affect performance.

Arousal

A physiological and psychological state of being awake or reactive to stimuli, involving changes in heart rate, brain activity, and energy levels.