Security A is a fully taxable security that earns 5% annually. Security B is a

Security A is a fully taxable security that earns 5% annually. Security B is a tax-exempt municipal security. If a short-term investment manager uses a tax
rate of 33% what yield must security B earn such that the investment manager would be indifferent between securities A and B?
Answer
2.5% 3.35% 4.67% 7.46% The effective cost of commercial paper is 6% and the effective cost of a bank credit line is also 6%. All other considerations aside
the treasurer should: Answer finance with the commercial paper finance with the bank credit line be indifferent to the commercial paper or the credit line wait for interest rates to change before making a decision