Question

A municipal bond must have a yield to maturity that is higher/lower/equal to the yield to maturity on a similar corporate bond.

Answer 1

Lower yield than similar corporate bond,Tax-exempt municipal bonds are of interest to investors who are subject to income tax because the interest income on these bonds is typically exempt from federal income tax and from income tax of the state where the bonds are issued, subject to certain restrictions. The Yield on a tax-exempt municipal bond is typically lower than that on an otherwise similar corporate bond to reflect the implied income tax rate. Investors are willing to accept a lower Yield on a tax-exempt municipal bond compared with an otherwise similar corporate bond because the income received from municipal bonds is not taxable