1. A corporation issues a 20 year bond with the final redemption value equal to the face value of $1000, and semiannual coupons of 8.5%. However, the bond is callable at the end of 10 years at $1100, and at the end of 15 years at $1040. What is the price of the bond if the investor’s yield (the “yield-to-worst”) is 6%?
2. Do investors in high tax brackets tend to invest in municipal bonds? Why or why not?
3. Professor French’s father works for Boeing. Professor French holds 18% of his portfolio in Boeing. Which type of bias or heuristic is Professor French displaying? Explain briefly.