Answer Happy

1. Ned is trying to decide whether he should invest in corporate bonds or tax-free municipal bonds. The two kinds of bonds have similar ratings and term to maturity. The corporate bond yields 5.1% while the muni has a yield of 3.32%. What is the taxable equivalent yield for the muni if he is in the 24% tax bracket and which bond should he choose? (Hint: Taxable equivalent yield - Tax-exempt yield of the muni/ (1 - tax bracket, expressed as a decimal) and because the two bonds are similarly rated and with similar term to maturity, you should choose to invest in the one with higher yield after taxes.) (5 pts) 4.37% and he should invest in the corporate bond 5.46% and he should invest in the corporate bond 6.52% and he should invest in the municipal bond 7.65% and he should invest in the municipal bond