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You are considering purchasing one of two bonds, a municipal bond or a corporate bond of comparable risk. Both bonds are selling at par, and
You are considering purchasing one of two bonds, a municipal bond or a corporate bond of comparable risk. Both bonds are selling at par, and their yields are 6% and 4%. a. If you are in the 20% marginal tax bracket, which bond would you prefer? Justify your choice by discussing before- and after-tax yields. b. What marginal tax rate would make you indifferent between the two choices?
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