Abstract
For an investor to be indifferent between a municipal security and, say, a corporate security of equal risk, the following would need to hold for par value bonds: RTE=R(1 T'), where RTE = the yield on the municipal security, R = the yield on the corporate security, and T' = the marginal tax rate of the investor. If RTE were greater than R(1 T'), rational investors would invest in municipal securities; if it were less, they would invest in corporates.'
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