Answer:
Municipal should offer at least 6.15 % after tax yield to the investor prefer them to corporate bond
Explanation:
We have given yield rate of corporate bond = 10.25%
Tax rate for investor = 40 %
Actual yield earned by investor will be equal to = yield rate of corporate bond × ( 1 - tax rate of investor )
= 0.1025 ( 1 - 0.40 )
= 0.1025 × 0.60
= 0.0615
For converting in percentage we have to multiply with 100
So actual yield earned by investor will be equal to 6.15 %
So municipal should offer at least 6.15 % after tax yield to the investor prefer them to corporate bond