1) An investor in the 30% income tax bracket can purchase municipal bonds yielding 4% or taxable bonds with the same amount of risk yielding 5.5%. Which would she prefer (show the reason mathematically)?

2) A 180 day T-Bill with a face value of $100,000 is selling at a discount yield of 0.25%. What are its price and bond equivalent yield?

3) U.S. Treasuries yield 3%, the market risk premium is 6% and ABC's beta is 1.2.

A) What is ABC's required rate of return?

B) If XYZ's required rate of return is 8.4%, what is its beta?