1. What’s the taxable equivalent yield on a municipal bond with a yield to maturity of 4.5 percent for an investor in the 28 percent marginal tax bracket?
2. Firm A and Firm B have debt-total asset ratios of 25 percent and 40 percent and returns on total assets of 8 percent and 7 percent, respectively. Which firm has a greater return on equity?
3. What is the ten-year break even rate? How is it calculated? Explain how it can serve as a gauge of inflation expectations?