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6. Muni bonds, taxes, and the future Which of the following is true about municipal (muni) bonds? 0 Generally, investors prefer corporate bonds over municipal bonds. 0 The interest paid on muni bonds is not subject to federal income tax. 0 The interest paid on muni bonds is subject a higher than average federal income tax. 0 Municipal bonds are less desirable, ceteris paribus, than corporate bonds. Suppose Eleanor is in the 25% tax bracket. She considers purchasing two bonds, a corporate bond, which pays a before-tax interest rate of 11.5%, and a muni bond, which pays a 3% interest rate. Complete the following table for the before- and after-tax yields on corporate and municipal bonds. (Note: Round your answers to the nearest hundredth.) Yield Corporate Bond Muni Bond Before tax % % After tax % % Suppose the before-tax yield on the corporate bond is 4.5%. Which of the following is true? 0 Eleanor will be indifferent between the corporate bond and the muni bond. 0 Eleanor will prefer the muni bond over the corporate bond. 0 Eleanor will prefer the corporate bond over the muni bond