1. Which bond has the highest reinvestment rate risk characteristics?

1. 5% coupon bond with 5 years maturity
2. 6% coupon bond with 5 years maturity
3. 0% coupon bond with 5 years maturity
4. 3% coupon bond with 5 years maturity

2. Moodys Rating Agency rates an issuer bond with a rating of Baa1. What conclusion can be made

1. The issuer of the bond is classified as low-grade, and speculative
2. The issuer is investment-grade
3. Issuer is in a risk of default
4. The issuer is termed a fallen angel because it is categorized as non-investment grade by Moodys

3. A taxable corporate bond has a yield of 4% and a municipal bond has a yield of 3%. If you are in the 25% tax bracket which bond do you prefer to own (show work)?

1. Corporate Bond
2. Municipal Bond