12 You are considering the following investments an ATT bond

12 You are considering the following investments: an AT&T bond with a yield to maturity of 5.4% or an Alamance county sewer revenue bond which yields 3.7%. Your personal tax rate is 35%. Which of the following is true?

Select one:

a. You will prefer the Alamance County bond

b. There is not enough information to make an informed decision

c. You are indifferent between the two bonds

d. You will prefer the AT&T bond

Solution

AT&T bond YTM will be taxed whereas Alamance county sewer will not be taxed
So after tax YTM of AT&T = 5.4% * ( 1- tax rate) = 5.4% * ( 1- 35%) = 3.51%
Alamance county sewer revenue bond = 3.7%

So option a is correct
Alamance county bond is better

Best of Luck. God Bless