1. Suppose the board of the Federal Reserve votes to raise interest rates in 2016. The Chairman then decides to execute this using the Fed’s most common policy tool rather than alter the discount rate. Explain what the Chairman plans to do. Show or describe the steps cause and effect between the Fed’s action and the ultimate rise of interest rates.
2. Assume you are evaluating the purchase of one of two bonds. Bond A is a municipal bond with a yield to maturity of 4.25 percent. Bond B is a corporate bond with a yield to maturity of 6.75 percent. If you are in the 35 percent tax bracket, which bond would you choose? Explain your answer.