The KK Corporation has $10,000 that it plans to invest in marketable securities. It is choosing between Wolif Company bonds, which yield 8.5 percent, state of Oromia bonds, which yield 5 percent, and Wolif Preferred Stock, with a dividend yield of 7 percent. KK corporate tax rate is 40 percent, and 80 percent of the dividends received are tax exempt. Assuming that the investments are equally risky and that KK chooses strictly on the basis of after-tax returns, which security should be selected?
