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of Flag Consider the case of an investor who is considering investing either in a corporate bond or a municipal bond. The coupon rate of

of Flag Consider the case of an investor who is considering investing either in a corporate bond or a municipal bond. The coupon rate of the corporate bond is 12%, investor's marginal tax rate is 30%, state tax rate is 4%, and the coupon rate on the municipal bond is 7%. What would you advise that investor to do? a. Invest in the corporate bond because its after-tax yield is 7.92% which is higher than the muni yield of 7%. O b. Always invest in a municipal bond because it is exempt from federal tax Invest in corporate bond paying 7% O d. Invest in municipal bond paying 7%. Clear my choice C. Next page

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