1. Assume you are evaluating the purchase of one of two bonds. Bond A is a municipal bond with a yield to maturity of 5.75 percent. Bond B is a corporate bond with a yield to maturity of 7.25 percent. If you are in the 25 percent tax bracket, which bond would you choose? Explain your answer.
2. Safeco is expected to pay a dividend of $1.00 next year and $1.85 in the following year, and $2.25 in the following year. Analysts believe that Safeco will hit their price target of $92.50 in three years. What is the value of Safeco stock if your required return is 10.25 percent?