The corporate treasurer of Wooden Furniture Inc is considering the purchase of either a municipal obligation

with a 6.1% coupon or a corporate bond with a 9.5% return. Both bonds have a $1,000 par value.

The company
is currently in the 35% marginal tax bracket. Which security should the treasurer recommend?

The after-tax yield to Wooden Furniture Inc. on the 9.5% corporate bond is (1 - .