1) Taxable corporate bond yielding 8% while a similar risk municipal bond is yielding 5.5%. What marginal tax rate would you be in-different between both bonds?

2) Assume that you and your bank agree that the probability that you will default on a loan and repay nothing is 15% and that the appropriate interest rate is 6%. What interest rate would you have to promise to pay in order to get a loan, assuming risk-neutrality? What is your cost of capital?

3) The bid price for Sun Microsystems (JAVA) is currently $16.22 and its ask price is $16.23. Your broker charges a commission of $13 per transaction. What are the total costs of buying and selling 1,000 shares of JAVA as a percentage of the invested dollars?