Question

The Carey State Bank has purchased a bank-qualified municipal bond with a coupon rate of 6%. The bank has had to borrow funds to make this purchase at a cost of 5.25%. The bank is in the 40% tax bracket. What is the net after-tax return on this bank-qualified municipal bond?

A. 6.00%

B. 0.75%

C. 2.85%

D. 2.43%

E. None of the options is correct

Answer

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