your professor has taught you that because municipal bonds (or any other tax-saving) bond would offer a tax saving on the interest income, the interest rate offered by such bonds may be even lower...

your professor has taught you that because municipal bonds (or any other tax-saving) bond would offer a tax saving on the interest income, the interest rate offered by such bonds may be even lower than the treasury bonds.

while what your professor has told you is correct, imagine a situation where income tax rates are reduced. describe the effect of a reduction in income tax rates on the interest rates of municipal bonds? would interest rates on Treasury bonds be affected as well? how?