A corporate (taxable) bond has a yield of 8% and a municipal bond has a yield of 6%, ceteris paribus.

Suppose that you are an investment advisor and you have a customer who wants to get your investment recommendation about these two bonds.

Your customer is in a 40% tax bracket.

Requirement 1:

What is your customer's after-tax return on the corporate bond?

%

Requirement 2:

What is your customer's after-tax return on the municipal bond?

%

Requirement 3:

Which bond do you recommend to your customer? (If your answer is the corporate bond, fill in the cell with capital "C"; If your answer is the municipal bond, fill in the cell with capital "M".)

Requirement 4:

As an advisor, you would like figure out at what tax rate a bond investor would be indifferent between the two bonds.