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Fergie has the choice between investing in a State of New York bond at 7.5 percent and a Surething Inc, bond at 10.6 percent.
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Answer #1

State of New York bond is tax free while Surething bond subject to tax

After tax return of both should be considered for the purpose of this decision

State of New York = 7.5%

Surething Inc. = 10.6%(1-30%) = 7.42

Hence, should invest in State of New York bond since higher after tax return

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