1. Suppose your tax bracket is 28%. Would you prefer to earn a 6% taxable return or a 4% tax-free yield? What is the equivalent taxable yield of the 4% tax-free yield?

2. What would be the profit or loss per share of stock to an investor who bought the October maturity IBM call option with exercise price $ 100, if the stock price at the expiration of the option is $ 104? What about a purchaser of the put option with the same exercise price and maturity?

3. An investor is in a 28% tax bracket. If corporate bonds offer 9% yields, what must municipal offer for the investor to prefer them to corporate bonds? Calculate the price of a firm with a plowback ratio of 0.60 if its ROE is 20%. Current earnings , E1, will be $ 5 per share , and K _ 12.5%.