An investor is considering two bonds, a 6.1 percent municipal bond versus a 8.5 percent regular bond. If the investor is in the 30 percent tax bracket, which bond should she chose? Why? Ignore state and local taxes.

both bonds are the same

the regular bond; it has a higher aftertax yield

the regular bond, it has a lower aftertax yield

the municipal bond, it has a higher aftertax yield

the municipal bond; it is exempt from all taxes