Janice Wilcox is a wealthy investor who's looking for a tax shelter. Janice is in the maximum (37%) federal tax bracket and lives in a state with a very high state income tax. (She pays the maximum of 12.3% in state income tax.) Janice is currently looking at two municipal bonds, both of which are selling at par. One is a AA-rated in-state bond that carries a coupon of 8.457%. The other is a AA-rated, out-of-state bond that carries a coupon of 8.959%. Her broker has informed her that comparable fully taxable corporate bonds are currently available with yields of 11.692%. Alternatively, long Treasuries are now available at yields of 11.025%. She has $100,000 to invest, and because all the bonds are high-quality issues, she wants to select the one that will give her maximum after-tax returns.

a. Which one of the four bonds should she buy?

b. Rank the four bonds (from best to worst) in terms of their taxable equivalent yields.