Assume a corporate bond has the yield to maturity (YTM) of 10.8% and is taxable. Further assume that there is also a public bond that has the yield of maturity (YTM) of 7.3%. What is the marginal tax rate here?

67.59%

32.41%

25.91%

74.09%

Same facts as above: which of the following would be true if the tax rate is 15.43%?

The investor will prefer government bonds since it is free of taxation.

The investor will prefer government bonds since the after-tax payoff will be higher.

The investor will prefer corporate bonds since it is free of taxation.

The investor will prefer corporate bonds because the after-tax payoff will be higher.