An Investor Is Comparing the Following Two Bonds: a Bond

question 28

Multiple Choice

An investor is comparing the following two bonds: a bond from ABC Corp which pays an interest rate of 9 percent per year and a municipal bond which pays an interest rate of 7.9 percent per year. The investor is in the 15 percent tax bracket. Which bond will give the investor a higher after-tax interest rate and for which reason?

• A)The ABC bond because it pays a 9 percent interest rate, while the municipal bond only pays 7.9 percent .
• B)The ABC bond because it pays an equivalent after-tax rate of 10.6 percent, while the municipal bond pays out an equivalent after-tax rate of 9.3 percent.
• C)The municipal bond because it pays an equivalent after-tax rate of 9.3 percent, while the ABC bond pays out a 9 percent interest rate.
• D)The municipal bond because it pays an equivalent after-tax rate of 7.9 percent, while the ABC bond pays out an equivalent after-tax rate of 7.65 percent.
• E)None of the above is correct.

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Definitions:

Emotional Conflicts

disputes that are primarily driven by emotions and feelings rather than logical or factual disagreements.

Teamwork

Occurs when team members live up to their collective accountability for goal accomplishment.

Intrapersonal Conflict

Intrapersonal conflict occurs within the individual because of actual or perceived pressures from incompatible goals or expectations.

Incompatible Goals

Objectives that cannot be achieved simultaneously because they conflict with one another.