Problem: A taxpayer is trying to decide between two investment options: a corporate bond that pays 8% interest or a state bond that pays 6.4% interest. If the taxpayer has an ordinary marginal tax rate of 37% and a marginal capital gains tax rate of 20%, which bond will provide the taxpayer with a higher after-tax return?
- The corporate bond
- The state bond
- The two bonds will provide the taxpayer with the same after-tax return.