Problem
a) The bond market and economy have just crashed, and the Fed is now lowering interest rates in order to help the economy recover. Which bond will likely be the higher returning investment from here, a 10-year US Treasury Bond or a 10-year Junk Bond?
b) Jim is in the 22% tax bracket and is looking at 2 bonds to invest in. One is a municipal bond paying 4% the other a taxable bond paying 5.5%. Which bond is the better choice for Jim? Show your work.