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Consider a BAB (Build America Bond) issued by the State of Illinois. This bond was issued on July 1, 2010. It was a 25-year bond at issue, had an A credit rating from S&P, and was issued at a yield (interest rate) of 7.1%. At that time, the yield on the comparable maturity tax-exempt bond issued by the State of Illinois was 5.25%. What is the net borrowing cost to Illinois for the BAB? Is this greater or less than the borrowing cost (5.25%) in the tax-exempt market? Why does this make sense?

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Category:- Financial Management
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