1) True of False?

"If Congress changes the tax law to increase marginal tax rates, the price of municipal bonds will increse."

2) One of the following statements is FASLE, which is it?

a) general obligation bonds are backed by tax revenue b) Municipal Bonds are less liquid than corporate bonds c) All municipal bonds are exempt from federal an state income taxes

3) There are several mortgage risks. This is a unique risk for mortgages that you cannot observe for other types of securities. Mortgage invesotrs are usually forced to reinvest at a lower interest rate due to this risk. What is this risk?

4) "The equivalent taxable yiled is higher than the muni yield if the muni is state and federal income tax exempt, Is this statement true?"

5) Which is not true about mortgages?

a) the lower the PTI ratio, the greater the likliehod that the applicant will be able to meet the required monthly mortgage payments b) the higher the LTV ratio, the greater the protection for the lender if the appplicant defaults on the payments and the lender must repossess and sell the property c) the three underwritting standards for conforming mortgages are a maximum PTI ratio, a maximum LTV ratio, and a maximum loan amount d) Mortgages have embedded call options

6) conforming mortgages should meet the three underwritting standards of federal agencies such as Fannie Mae or Freddie Mac, which is not one of the standards

a) a max loan amount b) a max PTI ratio c) a max reference rate d) a max LTV ratio

7) Suppose that an invesotr in the 40% marginal tax bracket is considering the acquisition of a tax exempt (state and federal income tax exempt) municipal bond that offers a yield of 6.5%. Assume that your state income tax rate is 10%. What is the equivalent taxable yield?