Corporate bonds are long-term debt financing instruments issued by corporations to

raise capital. Issuing bonds allows companies to have predictable fixed interest
payments with fewer costs compared to other financing methods. These bonds pay
regular interest (investor yields) to investors, who hold them in anticipation of yields.
The interest rate on corporate bonds is determined by the cost of capital. The cost of
capital represents the rate of return that a company must earn on its investments to
maintain its stock price. In other words, it is the expected returns on the securities
issued by a company. It encompasses both equity and debt funding costs. The higher
the cost of capital, the higher the interest rate on the bond. For corporate bonds, the
cost of capital is calculated by multiplying the average yield on the company's debt by
(1 minus the tax rate). Corporate bonds are considered riskier than U.S. government
bonds, so they typically offer higher interest rates to compensate for this additional
risk.However, the creditworthiness of the issuer matters; thus, investors should seek
advice from credit rating agencies regarding bond issuers' credit quality (Dauderis &
Annand, n.d., Heisinger & Hoyle, n.d, Jonick, 2017).

On the other hand, municipal bonds, also known as "munis," are debt obligations
issued by government entities (state and local governments) to fund public
projects.They are considered low-risk investments due to their backing by
government entities.The interest rate on municipal bonds is determined by the
investor yield, which is the rate of return that investors demand for investing in the
bond. The higher the investor yield, the higher the interest rate on the bond. Municipal
bonds are often considered to be less risky than corporate bonds, as they are backed
by the government and are exempt from federal income tax. As a result, investors are
willing to accept a lower yield on municipal bonds than on corporate bonds (Dauderis
& Annand, n.d., Heisinger & Hoyle, n.d, Jonick, 2017).

References
Dauderis, H., & Annand, D. (n.d.). Introduction to Financial Accounting.

Heisinger, K., & Hoyle, J. B. (n.d.). Accounting for Managers.

https://2012books.lardbucket.org/books/accounting-for-managers/index.html

Jonick, C. (2017). Principles of Financial Accounting. University of North Georgia

University Press. http://ung.edu/university-press