You have $200 000 to invest, and you have decided to purchase bonds that will mature in six years. You have narrowed your choices to two types of bonds. The first class pays 8.75 percent annual interest. The second class pays 5.4 percent annual interest but is tax-free, both federal and state. Your income bracket is such that your highest income tax rate is 31 percent federal and the state income tax is 9 percent. Which is the better investment for you at this time? Assume that all conditions remain unchanged for the six-year period.
What will be an ideal response?
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