A 65% Coupon Bond Issued by the Provincial Government of Ontario

A 6.5% coupon bond issued by the provincial government of Ontario sells for $1,000. What coupon rate on a corporate bond selling at $1,000 par value would produce the same after tax return to the investor as the tax-free municipal bond if the investor is in the 26% marginal tax bracket?

A) 1.69%
B) 11.25%
C) 8.78%
D) 14.63%
E) 25%