1. A bond dealer must place two instruments in the hands of two investors. Assume both investors dont care how much risk they take so long as theyre fairly compensated for it. (35 points).

Investments:

1. 10 year- municipal bond paying semi-annual coupons at a 5.5% annual coupon rate. It trades at a $40 discount.
2. 10 year corporate bond paying semi-annual coupons at a 10% annual coupon rate. It trades at a $200 premium.

Investors:

1. Hedge fund manager facing a 40% marginal tax rate.
2. The Securities Trading Desk at a local church (non-for-profit so they dont pay taxes).

Which party will the bond dealer market each security to and why? Show all intermediate calculations for credit.