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Dick Dowen is considering three investment opportunities:

(1) A 4.5% city of Chicago bond that is tax exempt at both state and federal levels.

(2) A 4.75% state of Illinois bond that is tax exempt at the federal level but taxable at the state level.

(3) A 6.7% McDonald's corporate bond that is taxable at both the state and federal levels. (Hint: Use the TETR.)

If the Illinois state tax rate is 6% and Dick's marginal federal tax rate is 30%, which investment yields the highest after-tax return?

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Category:- Basic Finance
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