1. Suppose that you are a financial advisor to two individuals who are considering investing in either a taxable Corporate Bond with an interest rate of 6.60%, or a tax-exempt Municipal Bond with a rate of 4.75%. Assume that both bonds have the same default risk and that, given their respective levels of income, Investor XY is subject to a marginal income tax rate of 35%, while investor WZ pays a marginal income tax rate of 20%. Which bond would you recommend to each of these two investors? Why?
2. What is Commercial Paper? Who issues it, and for what purpose?
3. What are Banker’s Acceptances and why are they so popular in the international trade of goods?