You can invest in taxable bonds that are paying a yield of 9.5 percent or a municipal bond paying a yield of 7.75 percent. Assume your marginal tax rate is 28 percent.
a. Calculate the after-tax rate of return on the taxable bond?
b. Which security bond should you buy?
- Taxable bonds that are paying a 9.5 percent annual rate of return OR
- Municipal bond paying a 7.75 percent annual rate of return.