Everything else held constant,if the tax-exempt status of municipal bonds were eliminated,then
A)the interest rates on municipal bonds would still be less than the interest rate on Treasury bonds.
B)the interest rate on municipal bonds would equal the rate on Treasury bonds.
C)the interest rate on municipal bonds would exceed the rate on Treasury bonds.
D)the interest rates on municipal,Treasury,and corporate bonds would all increase.

Question

Quizplus · Accepted Answer

Municipal bonds currently have a lower interest rate than Treasury bonds due to their tax-exempt status, which makes them more attractive to investors. If this tax-exempt status were eliminated, the demand for municipal bonds would decrease, leading to an increase in interest rates. It is likely that the interest rate on municipal bonds would exceed the rate on Treasury bonds in this scenario. The interest rates on corporate bonds may also be affected, but it is not clear if they would increase or decrease in this scenario.

Everything Else Held Constant,if the Tax-Exempt Status of Municipal Bonds