Question

A client in the 28 percent marginal tax bracket is comparing a municipal bond that offers a 5.4 percent yield to maturity and a similar risk corporate bond that offers a 7.15 percent yield. Which bond will give the client more profit after taxes

Answer 1

Corporate bond will have more profit

Step-by-step explanation:

The various calculations of municipal bond and corporate bond are as follows

After tax yield of municipal bond = 0.054 (1 - 0.28)

After tax yield of municipal bond = 0.0389 or 3.89%

After tax yield of corporate bond = 0.0715 (1 - 0.28)

After tax yield of corporate bond = 0.0515 or 6.15%

Thus, Corporate bond will have more profit