1. Your investment has a 20% chance of earning a 26% rate of return, a 50% chance of earning a 6% rate of return and a 30% chance of losing 9%. What is your expected return on this investment?
2. Consider the following two bonds.
A 3-year bond issued by GE with a yield of 5.4% is trading at par.
A 3-year bond issued by the state of NJ has a yield of 4.3% and is also trading at par.
Suppose the marginal tax rate is 25%. which bond will be preferred to buy?