A municipal bond is paying a 6% annual yield. An equivalent risk corporate bond is paying 7%. Investors with a tax rate of _______________ or higher would prefer the municipal bond.

Question

Quizplus · Accepted Answer

Investors with a tax rate of 25% or higher would prefer the municipal bond because the tax exempt status of municipal bonds would provide a higher after-tax yield compared to the equivalent risk corporate bond paying 7%.

A Municipal Bond Is Paying a 6% Annual Yield