Explain the difference between a call option and a long position in a futures contract. 1.

A firm’s preferred stock often sells at yields below its bonds because

a. Preferred stock generally carries a higher agency rating.

b. Owners of preferred stock have a prior claim on the firm’s earnings.

c. Owners of preferred stock have a prior claim on a firm’s assets in the event of liquidation.

d. Corporations owning stock may exclude from income taxes most of the dividend income they receive. 2.

A municipal bond carries a coupon of 6.75% and is trading at par. What is the equivalent taxable yield to a taxpayer in a combined federal plus state 34% tax bracket?