Please answer the two questions below based on the following statement: “As of October 2008, municipal securities’ yields rose to high levels (as high as 5%) as investors shunned such tax-exempt securities for corporate bonds.”

a. Why would investors abandon tax-exempt securities for (partially) taxable bonds? Explain from an economic point of view.

b. What yield would a taxable bond have to offer if municipal bonds offered a 5% yield

(ignoring the short-run period mentioned in the text)? Assume that you belong to a 30%

income-tax bracket. Show your calculations.