Comparing Bond Yields 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 answer.

Question

Quizplus · Accepted Answer

Municipal bonds offer tax-free income because the interest is exempt from federal income taxes and usually state and local taxes as well. In this case, the client would not have to pay taxes on the 3.25 percent yield from the municipal bond, while they would have to pay taxes on the 4.10 percent yield from the corporate bond. Therefore, the municipal bond would provide the client with more profit after taxes.

Comparing Bond Yields a Client in the 28 Percent Marginal