Question: Please answer question 2: Suppose there are two types of investors in the municipal bond market. The interest on municipal bonds is tax free. 40%

Please answer question 2: Suppose there are two types of investors

Please answer question 2: Suppose there are two types of investors in the municipal bond market. The interest on municipal bonds is tax free. 40% of the participants pay a 30% tax rate and 60% pay a 15% tax rate. Consider the following bond: Price of bond = $1000 Interest payment on bond = $40 Interest payment on a similar bond with the same price that is not tax free = $55 1. Which, if any, type of investor should choose the municipal bond over the taxable bond? Explain. 2. Given the answer in Q1, what would you expect would happen to the price of the bond

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