1. Find the equivalent taxable yield of the municipal bond in the previous problem for tax brackets of zero, 10%, 20%, and 30%.
2. The coupon rate on a tax exempt bond is 5.6%, and the rate on a taxable bond is 8%. Both bonds sell at par. The tax bracket (marginal tax rate) at which an investor would be indifferent between the two bonds is:
a. 30.0%
b. 39.6%
c. 41.7%
d. 42.9%
3. Which security should sell at a greater price?
a. A 10 year Treasury bond with a 9% coupon rate versus a 10 year T bond with a 10% coupon.
b. A 3 month maturity call option with an exercise price of $40 versus a 3 month call on the same stock with an exercise price of $35.
c. A put option on a stock selling at $50, or a put option on another stock selling at
$60 (all other relevant features of the stocks and options may be assumed to be identical).