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A taxable investor has a 40% marginal tax rate. The investor is choosing between two bonds: An A-rated corporate bond with a 4% coupon rate, or an A-rated municipal bond with a 2.5% coupon. Assume both bonds are priced at their par value.

a. Which bond offers the investor a more attractive yield?

b. What taxable yield on the corporate bond would make the investor indifferent between the 2.5% municipal bond and the corporate bond?

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Financial Management, Finance

Category:- Financial Management
Reference No.:- M92665813

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