1. A bond issued by IBM pays 8%. A bond issued by the municipality of College Park, MD pays 6.5%. Assume that your highest marginal tax rate is 25%. Which of the following is true? (REMEMBER: the interest income from municipal bonds is tax free).
a. The net rate of return for the IBM bond is higher.
b. The net rate of return for the College Park bond is higher.
c. None of these, there is not enough information to compute the net rates of return.
d. The net rate of return for both bonds are the same.
2. Suppose that you had budgeted $2,500 for your monthly housing expense (PITI & maintenance). You estimate that you monthly maintenance expense will be about $80, you homeowner’s insurance will be about $120 per month, and you annual real estate taxes at $2,400. You’ve been approved for a 7%, 30 year mortgage. Which of the following best approximates the market value of the house that fits your budget?
$238,250
$275,540
$356,100
$312,700