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A corporate bond has a yield of 8.0 percent and a municipal bond has a yield...

A corporate bond has a yield of 8.0 percent and a municipal bond has a yield of 6.5 percent. Which bond do you prefer if you are in the 25 percent tax bracket?

A.Muni Bond

B.Corporate Bond

C.There is no difference between the bonds. Either bond offers the same after tax yield for the investor.

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Answer #1

After tax yield of corporate bond=yield*(1-tax rate)=8%*(1-25%)=6.00%

Prefer Municipal bond as it offers hugher yield of 6.5%

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