Use the following data for questions 1 and 2. Suppose a municipal bond has a yield of 4%, while comparable taxable bonds pay 5%.
1. Which bond gives you the higher after-tax yield if your tax bracket is 30%?
(a) Municipal bond (b) Corporate bond
2. At what tax rate would you be indifferent between the two bonds?
(a) 25% (b) 10% (c) 30% (d) None of the above