A 65 Percent Coupon Bond Issued by the State of California

question 1

Multiple Choice

A 6.5 percent coupon bond issued by the State of California sells for $1,000. What coupon rate on a corporate bond selling at $1,000 par value would produce the same after-tax return to the investor as the municipal bond if the investor is in the 26 percent marginal tax bracket?

• A) 1.69 percent
• B) 11.25 percent
• C) 8.78 percent
• D) 14.63 percent
• E) 25 percent

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