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Yield on Bonds

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?

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** 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 ...

Solution Summary

Evaluates two bonds- one a corporate bond and the other a municipal bond- based on yields.