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 bond interest is tax-exempt, so the client will not have to pay federal income tax on the 3.25 percent yield. The corporate bond yield, however, will be subject to federal income tax, reducing the client's profit. Therefore, the municipal bond will give the client more profit after taxes.

Comparing Bond Yields a Client in the 28 Percent Marginal