An investor purchases one municipal and one corporate bond that pay rates of return of 5.00% and 6.40% respectively.If the investor is in the 15% tax bracket,his after tax rates of return on the municipal and corporate bonds would be respectively

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Since the investor is in the 15% tax bracket, the after-tax rate of return for the municipal bond would be equal to the pre-tax rate of return (5.00%) because municipal bond interest is typically tax-exempt at the federal level. Therefore, the after-tax rate of return on the municipal bond is 5.00%.
For the corporate bond, the after-tax rate of return would be the pre-tax rate of return (6.40%) minus the tax liability (15% of 6.40% = 0.96%). Therefore, the after-tax rate of return on the corporate bond is 5.44%.
Comparing the after-tax rates of return for each bond, the investor would be better off purchasing only the municipal bond, which has a higher after-tax rate of return (5.00% vs 5.44%). Therefore, the best choice is not to invest in the corporate bond.

An Investor Purchases One Municipal and One Corporate Bond That