Question

Suppose that five-year AAA-rated municipal bonds were yielding 2.88% whereas five-year AAA-rated corporate bonds were yielding 4.23%. Municipal bonds are typically tax-exempt at the federal level, whereas corporate bonds are fully taxable. The lower pre-tax return on municipal bonds is called:
A. An explicit tax
B. An implicit tax
C. An outrageous tax
D. An egregious tax
E. An estate tax

Answer 1

Solution:

The lower pre tax return on muncipal bonds is called "An implicit tax"

Hence option B is correct.