Jackson Has the Choice to Invest in City of Mitchell

Multiple Choice

Jackson has the choice to invest in city of Mitchell bonds or Sundial, Incorporated corporate bonds that pay 5.4 percent interest. Jackson is a single taxpayer who earns $45,000 annually. Assume that the city of Mitchell bonds and the Sundial, Incorporated bonds have similar risk. What interest rate would the city of Mitchell have to pay in order to make Jackson indifferent between investing in the city of Mitchell and the Sundial, Incorporated bonds for 2020? (Use tax rate schedule.)

A) 4) 21 percent
B) 5) 40 percent
C) 4) 41 percent
D) 3) 61 percent
E) None of the choices are correct