3. How does the after-tax yield on a municipal bond With a coupon rate Of paying interest annually, compare with that, of a corporate bond with a coupon rate or 10% paying interest annually? Assurne rhat you are in the tax bracket

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4. Consider the decision to purchase either a five-year corporate bond or a five-year municipal bond. The corporate bond is a 12% annual coupon bond with a par value of $1000. It is currently yielding 11.5%. The municipal bond has an 8.5% annual coupon and a par value of $1000. It is currently yielding 7%. Which of the two bonds would be more beneficial to you? Assume that your marginal tax rate is 35%. 5. Debt issued by Southeastern Corporation currently yields 12%. A municipal bond of equal risk cur- rently yields 8%. At what marginal tax rate would an investor be indifferent between these two bonds? 6. One-year T-bill rates are expected to steadily increase by 150 basis points per year over the next six years. Determine the required interest rate on a three-year T-bond and a six-year T-bond if the current one-year interest rate is 7.5%. Assume that the pure expectations hypothesis for interest rates holds. 7. The one-year interest rate over the next ten years will be 3%, 4.5%, 6%, 7.5 %, 9 %, 10.5%, 13%, 14.5%, 16%, and 17.5%. Using the pure expectations the- ory, what will be the interest rates on a three-year bond, six-year bond, and nine-year bond? 8. Using the information from the previous question, now assume that investors prefer holding short- term bonds. A liquidity premium of 10 basis points is required for each year of a bond's maturity. What