The muni yields 4.25% tax free. So it depends on the investor's objectives. If he/she wants the higher return they will pick the muni, however if the investor wants a totally safe investment with a zero chance of loosing money or suffering through a default, they will sacrifice the higher return and pick treasury bond since is 100% backed by the full faith and credit of the US government.
An investor in the 28 percent tax bracket is trying to decide which of two bond to select one is a 5.5 percent us. Treasury bond selling at r the other is a municipal bond with a 4.25 percent coupon, which is also selling at par. Which of these two bonds should the investor select?
