Final answer:
The premium that is paid on a corporate bond due to its tax status is the Taxability premium.
Step-by-step explanation:
The premium that is paid on a corporate bond due to its tax status is the Taxability premium. In the context of bonds, a taxability premium refers to the additional return that investors require on taxable corporate bonds compared to tax-exempt municipal bonds.
This premium compensates investors for the taxes they have to pay on the interest income earned from taxable bonds. Municipal bonds, on the other hand, are generally exempt from federal income taxes and may also be exempt from state and local taxes.