1. Assume that the risk-free rate increases from 3% to 4%, but the market-risk premium remains constant at 6% and beta remains at 1.1. What impact would it have on the cost of debt? What impact would it have on the cost of equity?

2. Why do municipal bonds have lower yields (ylds) in general than corporate bonds and why do some bonds have much higher yields than others?

3. Suppose that a share of preferred stock pays semiannual dividends that increase by 2.2% with each dividend, and the first dividend is $8. If the price of the stock is $84, what is the yield rate? (Give your answer as the nominal rate convertible semiannually.)

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