If a local government eliminates the tax exemption on municipal bonds, we'd expect to see:
A) An increase in the yield on taxable bonds
B) A decrease in the gap in yields on taxable and tax-exempt bonds
C) A decrease in the yield on municipal bonds
D) Municipal bonds will become more attractive to investors

Question

Quizplus · Accepted Answer

Eliminating the tax exemption on municipal bonds would make them less attractive, increasing their yield to compensate, thus narrowing the yield gap between taxable and tax-exempt bonds.

If a Local Government Eliminates the Tax Exemption on Municipal