Determine which bond is the superior choice

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Problem 1: An investor is considering the purchase of either a 9% corporate bond that is selling at par or a 7% tax-exempt municipal bond that is also selling at par. She is in the 28% marginal tax bracket. The two bonds are comparable in all respects except their tax status. If the investor's objective is to maximise her return, determine which bond, if any, is the superior choice.

A. The municipal bond is superior to the corporate bond.
B. The corporate bond is superior to the municipal bond.
C. The corporate bond and the municipal bond are equivalent.
D. There is not enough information to compare the returns on the two bonds.

Reference no: EM132933580

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