You pay federal income taxes at a 28 percent marginal tax rate You have the choice of buying either a taxable corporate bond paying 7 10 percent coupon interest or a similar maturity and risk municipal bond paying 5 90 percent coupon interest a Which bond offers the higher after tax yield b If you ...

Aftertax yields a Taxable corporate yields 0 ...

You pay federal income taxes at a 28 percent marginal tax rate. You have the choice of

Question:

You pay federal income taxes at a 28 percent marginal tax rate. You have the choice of buying either a taxable corporate bond paying 7.10 percent interest or a similar and risk municipal bond paying 5.90 percent interest.
a. Which bond offers the higher after tax yield?
b. If you also pay a state income tax on taxable interest at a 9 percent rate, but no tax on municipal interest, which bond offers the higher after tax yield?
Coupon
A coupon or coupon payment is the annual interest rate paid on a bond, expressed as a percentage of the face value and paid from issue date until maturity. Coupons are usually referred to in terms of the coupon rate (the sum of coupons paid in a... Maturity
Maturity is the date on which the life of a transaction or financial instrument ends, after which it must either be renewed, or it will cease to exist. The term is commonly used for deposits, foreign exchange spot, and forward transactions, interest...