A client in the 28 percent marginal tax bracket is comparing a municipal bond that offers a 3.25 percent yield to maturity and a similar-risk corporate bond that offers a 4.10 percent yield.Which bond will give the client more profit after taxes?
A) The municipal bond.
B) The corporate bond.
C) Both give the client equal profits after taxes.
D) There is not enough information given to determine the answer.

Question

Quizplus · Accepted Answer

First determine the ETY:
Equivalent taxable yield = 11ea8218_29ca_2185_bbd8_1fa43dfd9ef4_TB1326_11 = 11ea8218_29ca_4896_bbd8_2fcb74d64a7e_TB1326_11 = 4.51%
Since 4.51% > 4.1%, the client should take the municipal bond.

A Client in the 28 Percent Marginal Tax Bracket Is