Suppose you are an investor facing a choice between three investments that are identical in every way except in terms of their rates of return and taxability. Which investment provides the highest after-tax return?
Investment A:interest rate 10 percent, tax rate 40 percent of interest income.Investment B:interest rate 8 percent, tax rate 25 percent of interest income.Investment C:interest rate 6.5 percent, tax rate 0 percent.
Investment D:interest rate 5 percent, tax rate 1 percent.
A. Investment A
B. Investment B
C. Investment C
D. Investment D
Answer: C
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What will be an ideal response?