Taxpayer A purchased $100,000 of corporate bonds yielding 12.5% per annum; the interest income from these bonds is taxed at a rate of 28%. Taxpayer B purchased $100,000 of municipal bonds yielding 9%...

Taxpayer A purchased $100,000 of corporate bonds yielding 12.5% per annum; the interest income from these bonds is taxed at a rate of 28%. Taxpayer B purchased $100,000 of municipal bonds yielding 9% per annum. The interest from these bonds is tax exempt. The bonds have similar maturities and risk. What is the after-tax rate of return earned by each taxpayer? Is taxpayer B paying taxes in any sense here?

a. Who are the taxes being paid to?

 b. What is the implied tax rate?