In: Finance
A. Municipal bond preferred
B. Corporate Bond (taxable) preferred
C. Because 6% and 5.97% are VERY close, the difference is small enough that the preference would hinge on other factors, while technically, you would prefer the 6% taxable return, which has a SLIGHTLY higher 4.02% after-tax return.
Equivalent taxable yield=municipal bond yield/(1-tax rate)
=4/(1-0.33)
=5.97%(Approx)
Hence Corporate Bond should be preferred having higher return comparatively
Hence the correct option is:
B. Corporate Bond (taxable) preferred