An individual investor is considering two possible bonds. A Corporate Bond provides a current yield of 6%. A Municipal Bond provides a current yield of 3.5%. The investor pays a marginal federal tax rate of 30%. (Ignore state or city income taxes for this problem).

• 1.What is the effective AFTER TAX yield on the Corporate Bond

2.What is the effective AFTER TAX yield on the Muni Bond?

• 3.If the investor paid a marginal tax rate of 25%, which investment would provide a higher after tax yield? If the marginal tax rate were 35%?