If an investor is in the 25 percent income tax bracket and can earn 5 percent on a corporate bond, then 3 percent on a municipal bond is attractive.

Question

Quizplus · Accepted Answer

Municipal bonds offer tax-free income, so the after-tax return on a 3 percent municipal bond would be higher than the after-tax return on a 5 percent corporate bond for someone in the 25 percent income tax bracket. Therefore, a 3 percent municipal bond would be considered attractive.

If an Investor Is in the 25 Percent Income Tax