You are trying to decide whether it is worth investing in a municipal bond or a corporate bond. You have identified a corporate bond you like with an 8% yield. If you are in the 30% marginal tax bracket, what comparable interest rate on a municipal bond would you accept?

Question

Quizplus · Accepted Answer

The after-tax yield of the corporate bond is 8% * (1 - 0.30) = 5.6%. Therefore, you would accept a municipal bond with a yield of 5.6% or higher, as municipal bonds are typically tax-exempt.

You Are Trying to Decide Whether It Is Worth Investing