You are comparing a corporate bond with 85 yield to, Financial Management

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You are comparing a corporate bond with 85 yield to

1. You are comparing a corporate bond with 8.5% yield to maturity (YTM) and a municipal bond with a 5.5% yield to maturity (YTM). At what income tax rate would you be indifferent between these two bonds? (i.e. they offer the same after-tax return rate)

2. An investor is in a 30% combined federal plus state tax bracket. It corporate bonds offer 9% yields, what must municipals offer for the investor to prefer them to corporate bonds?

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