1. Suppose you had the opportunity to buy one of the following three bonds: A 10-year municipal bond with a coupon rate of 6%, a 10-year U.S. Treasury bond with a coupon rate of 8%. and a 10-year corporate bond with a coupon rate of 10%. Which bond would you prefer, assuming a 35% tax rate and that three bonds have similar default risk and liquidity?
A) The municipal bond
B) The U.S. Treasury bond
C) The corporate bond
D) Either the municipal bond or the corporate bond
2. The auction purchase price on a six-month T-bill is $97.495 per $100 of face value. You purchase the T-bill when it still has 180 days before maturity. What is the discount rate on this T-bill?
A) .495% B) 2.51% C) 4.36% D) 5.01%