Harper just got a big raise at work, which pushed her from the 15% federal marginal tax bracket to the 25% marginal tax bracket. Which of the following best describes how this might affect her decision to buy municipal bonds?
A) This will make her more likely to buy municipal bonds rather than corporate bonds because she is wealthier.
B) This will make her more likely to buy municipal bonds because it will increase the difference between the nominal interest rate paid on the bonds and the after-tax interest rate she will receive relative to corporate bonds.
C) This will make her less likely to buy municipal bonds rather than corporate bonds because the increase in taxes will reduce her wealth.
D) This will make her neither more nor less likely to buy municipal bonds rather than corporate bonds.
Correct Answer:
Verified
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