2. So your customer wants to diversify her investments and wishes to include bonds in her portfolio. The bonds would include taxable and non-taxable bonds in her investment. Take a look at the following simulation and answer the questions that follow.

A $1,000, 8%, 10-year corporate bond is currently selling for $975. A customer of your is desiring 9% return on her investment over the full ten-year period. Your same client-customer is thinking about a tax-free municipal bond yielding a tax-free rate of 7% and she is currently assessed at a marginal tax rate of 35%. Answer the following questions:

A. What is the current yield on the corporate bond?

B. What is the % yield over the full life of the investment

C. Calculate the customer's price - the price she will be willing to pay for the bond

D. Would she buy the bond? WHY?

E. Comparing the corporate taxable bond with the non-taxed municipal bond which investment will give her a better after tax return? Explain fully showing your rationale.