Problem:
Three clients-Sam's Sporting Goods, Jamie's Basketball Academy, and Jessica's Sport Marketing Agency, have asked you to determine the best investment option for them. All three clients have been offered to invest in a municipal bond. This municipal bond is from the same state as your clients and is exempt from state and local taxes for interest. The bond's yield is 3.75 percent with five years left until maturity. Sam's Sporting Goods is in the 15 percent tax bracket, Jamie's Basketball Academy is in the 28 percent tax bracket, and Jessica's Sport Marketing Agency is in the 35 percent tax bracket. Assuming a taxable investment yields your client's 5.0%, which of your clients should purchase the municipal bond? Formulas used: Tax-equivalent yield = tax-exempt yield÷(1-tax rate) ; Minimum tax-exempt yield = taxable yield × (1-tax rate) Question Select one: A. Jamie's Basketball Academy and Jessica's Sport Marketing Agency B. Jessica's Sport Marketing Agency C. Sam's Sporting Goods D. Sam's Sporting Goods, Jamie's Basketball Academy, and Jessica's Sport Marketing Agency E. None of the clients should invest in the municipal bond