Q4: An investor has the choice of an AA-rated corporate bond with a yield of 6% or an AA-rated muni yielding 4%. Please complete the table and answer the questions below.

If the investor has a marginal tax rate of 30%, which bond should he/she select?
If the investor has a marginal tax rate of 35%, which bond should he/she select?

Yield

Bond Rating

Municipal

?

AA

Corporate

?

AA

Investors' Marginal Tax Bracket (%)

Municipal Yield (%)

Corporate After-Tax Yield (%)

Munis' Tax Equivalent Yield (%)

Corporate Yield (%)

10%

0.00%

?

?

0.00%

15%

0.00%

?

?

0.00%

25%

0.00%

?

?

0.00%

28%

0.00%

?

?

0.00%

30%

0.00%

?

?

0.00%

33%

0.00%

?

?

0.00%

35%

0.00%

?

?

0.00%

40%

0.00%

?

?

0.00%