Question
You are trying to decide between a par value corporate bond carrying a coupon rate of 6.25% per year and a par value municipal bond
You are trying to decide between a par value corporate bond carrying a coupon rate of 6.25% per year and a par value municipal bond that pays an annual coupon rate of 4.75%. Assuming all other factors are the same and you are in the 28% tax bracket, which bond should you choose and why?
A. | Corporate bond because the after tax yield is 6.25%. | |
B. | Corporate bond because the after tax yield is 4.5%. | |
C. | Municipal bond because the equivalent taxable yield is 6.3%. | |
D. | Municipal bond because the equivalent taxable yield is 6.6%. | |
E. | You will be indifferent between the two because the after tax yields are the same. |
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