Holding Risk Constant, an Investor Earning 4% from a Tax-Exempt

Multiple Choice

Holding risk constant, an investor earning 4% from a tax-exempt bond who is in a 20% tax bracket would be indifferent between that bond and:

A) A taxable bond with a 7.5% yield
B) A taxable bond with a 8.0% yield
C) A taxable bond with a 5% yield
D) A taxable bond with a 6% yield