Let's solve each part step by step:

Part 1: After-tax return of the corporate bond for a 10% marginal tax bracket

The formula for after-tax return is:

$\text{After-tax return} = \text{Pre-tax return} \times (1 - \text{Tax rate})$

For the corporate bond:

• Pre-tax return = 5.69%
• Tax rate = 10% (0.10)

So, the after-tax return is:

$5.69\% \times (1 - 0.10) = 5.69\% \times 0.90 = 5.12\%$

Thus, the after-tax return for an investor in the 10% tax bracket is 5.12%.

Part 2: Comparison between the corporate bond and the municipal bond

Now, compare the after-tax return of the corporate bond (5.12%) with the tax-exempt municipal bond (4.82%).

Since the municipal bond is tax-exempt, its yield of 4.82% is not reduced by taxes. So, for an investor in the 10% tax bracket:

• Corporate bond after-tax yield = 5.12%
• Municipal bond yield = 4.82%

Clearly, the corporate bond offers a higher after-tax return, so:

Answer: A. The after-tax yield of 5.12% for the corporate bond is a better alternative than the 4.82% tax-free municipal bond at the 10% tax rate.

Part 3: After-tax return of the corporate bond for a 35% marginal tax bracket

Using the same formula, we calculate the after-tax return for an investor in the 35% tax bracket:

$\text{After-tax return} = 5.69\% \times (1 - 0.35) = 5.69\% \times 0.65 = 3.70\%$

So, the after-tax return for an investor in the 35% tax bracket is 3.70%.

Comparison for the 35% tax bracket:

• Corporate bond after-tax yield = 3.70%
• Municipal bond yield = 4.82% (still tax-exempt)

In this case, the municipal bond provides a better return. Hence, the tax-exempt municipal bond is the better option for an investor in the 35% tax bracket.

---

Do you want further details or have any questions?

Here are some related questions:

1. What are the general tax advantages of municipal bonds?
2. How does the length of the bond impact returns in different tax brackets?
3. What role does credit rating play in bond selection?
4. How does inflation affect bond yields over time?
5. How would returns change if the investor's tax bracket fluctuates?

Tip: Always consider both the tax impact and the bond's credit quality when comparing investment options.