An investor in the 28 percent bracket is trying to decide which of two bonds to select: one is a 5.5% U.S. Treasury bond selling at par; the other is a municipal bond with a 4.25% coupon rate which is selling at par. Assuming the same level of risk for the two bonds, which of these two bonds should the investor select and explain why?

Be sure to incorporate the formula in the text on page 334 at the bottom of the municipal bond section in which the yield on a tax free municipal bond can be converted into an equivalent rate on a taxable bond. Formula on 334 is: Fully taxable equivalant yield= Yield on municipal bond/1- Tax rate