1. You are considering investing in a bond. Two opportunities present themselves

Question

1.       You are considering investing in a bond.  Two opportunities present themselves: municipal (tax-exempt) and corporate (taxable). Assume you pay 40% tax on any earnings and your MARR is 8%.

Municipal            Corporate

                                                               i.       Face Value                         $5000                    $5000

                                                             ii.       Market Price                      $3770                    $2010

                                                            iii.       Annual Interest                                6%                          10%

                                                           iv.       Maturity                              10 years               10 years

What is the better choice?

You are considering investing in a bond. Two opportunities present themselves: municipal (tax-exempt) and corporate (taxable). Assume you pay 40% tax on any earnings and your MARR is 8%. What is the better choice?

Explanation / Answer

iii. Annual Interest 6% 10%

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