Alternative Investments
October 12th, 2009
Question: What is the after-tax return on the best investment alternative?
West Corporation has $50,000 which it plans to invest in marketable securities. The corporation is choosing between the following three equally risky securities: Alachua County tax-free municipal bonds yielding 6%; Exxon bonds yielding 9.5%; GM preferred stock with a dividend yield of 9%. West Corporation tax rate is 35%. What is the after-tax return on the best investment alternative? (Assume the company chooses on the basis of tax-returns)
Answer: If you learn to do this, someday you will have the $50,000 to invest. So, it’ll pay off.
This isn’t complicated math.
CFA Exam Prep Level 1 Alternative Investments
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