At what point would an investor be indifferent between a GM corporate bond yielding 9.5 percent and a tax-free municipal bond of equal financial strength if the investor's marginal tax rate is 25 percent?
A) 7.13 percent
B) 7.60 percent
C) 11.87 percent
D) 12.67 percent
E) 14.27 percent

Question

Quizplus · Accepted Answer

The investor would be indifferent when the after-tax yield of the corporate bond equals the yield of the tax-free municipal bond. The after-tax yield of the corporate bond is calculated as 9.5% * (1 - 0.25) = 7.125%, which is approximately 7.13%.

At What Point Would an Investor Be Indifferent Between a GM