Fred wants to buy a municipal bond from his hometown in Texas, which is not where he lives currently, but also has no state income tax. The state Fred now lives in has a $3\%$ state income tax. This municipal issue would support an airport project, pay $6\mathrm{.}35\%$ and would allow him to fly home a bit more conveniently, but he is also considering a corporate bond issued by a local bicycle manufacturer, also in his home town.

Fred's current tax rate is $25\%$ federally and the return on the corporate bond is $8\mathrm{.}15\%.$ Which purchase addition to his portfolio would provide him a better return based on your calculation of the Tax Equivalent Yield $($TEY$)?$

Group of answer choices

The corporate bond; TEY $=8\mathrm{.}82\%$

The corporate bond; TEY $=8\mathrm{.}47\%$

The municipal bond; TEY $=11\mathrm{.}32\%$

The municipal bond; TEY $=9\mathrm{.}13\%$