Martin is trying to decide which one of the following bonds he should purchase. All the bonds have the same maturity date and all have approximately the same level of risk. The general level of interest rates is declining
Martin is in the 33 percent federal income tax bracket and the 6 percent state income tax bracket. The municipal bonds are from his home state.
Which bond should Martin purchase if he wishes to hold it for the long term?
A) bond A because it has the highest yield and is unlikely to be called when rates are declining
B) bond B because it has the highest after tax yield and is unlikely to be called when rates are declining
C) bond C because bond D is likely to be called
D) bond D because it has the highest after tax yield and is unlikely to be called when rates are declining
Answer: C
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