If average corporate bond and tax-exempt municipal bond rates were 8.33% and 6.25% respectively, an investor in the 34 percent marginal corporate tax bracket would purchase

Question

Quizplus · Accepted Answer

The after-tax yield of the corporate bond is 8.33% * (1 - 0.34) = 5.50%, which is less than the tax-exempt municipal bond yield of 6.25%. Therefore, the investor would choose the tax-exempt bond.

If Average Corporate Bond and Tax-Exempt Municipal Bond Rates Were