"A customer in the 28% tax bracket is considering the purchase of a municipal bond yielding 9% or a corporate bond yielding 12%. Both bonds have similar maturities and credit ratings. Which statement is TRUE?"

The effective yield on the municipal bond is higher

Explanation:

The options for the question are:

A. The effective yield on the municipal bond is higher

B. The effective yield on the corporate bond is higher

C. Both effective yields are equivalent

D. The coupon rates for each bond are necessary to determine the effective yield.

From the question, we are informed that a customer in the 28% tax bracket is considering the purchase of a municipal bond yielding 9% or a corporate bond yielding 12% and that both bonds have similar maturities and credit ratings.

Out of the options that are given, the option that is true is that the effective yield on the municipal bond is higher. This is because the equivalent municipal yield will be more than the Corporate bond which yields 12%.

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