An investor in the 28 percent tax bracket is trying to decide which of two bonds to purchase. One is a corporate bond carrying an 8 percent coupon and selling at par. The other is a municipal bond with a 5 1/2 percent coupon and it, too, sells at par. Assuming all other relevant factors are equal, which bond should the investor select?
** Please see attached file **
Since the bonds are selling at par, before tax yield on bonds = coupon rate
To decide on the better investment, the investor should look at ...
Evaluates two bonds- one a corporate bond and the other a municipal bond- based on yields.