Consider the decision to purchase either a 5-year corporate bond or a 5-year municipal bond.
The corporate bond is a 12% annual coupon bond with a par value of $1,000. It is currently yielding 11.5%.
The municipal bond has an 8.5% annual coupon and a par value of $1,000. It is currently yielding 7%.
Which of the two bonds would be more beneficial to you? Assume that your marginal tax rate is 35%.
Municipal Bond
Purchase Price
After-tax Coupon Payment
Par Value
Calculated YTM
Corporate Bond
Purchase Price
After-tax Coupon Payment
Par Value
Calculated YTM
Which of the two bonds would be more beneficial to you:
Why: