Answer:
At tax rate 32.1%, investors be indifferent between the two bonds
Explanation:
Yield after tax of corporate bond = 8.1% * (1- tax rate)
Investors would be indifferent between the two bonds when Yield after tax of corporate bond equals to yield of tax free municipal bonds.
8.1% * (1- tax rate) = 5.5%
⇔ 8.1% - 8.1% * tax rate = 5.5%
Tax rate = (8.1% - 5.5%)/8.1% = 32.1%
