1. Compute the yield to call for a 4% semi-annual bond due in 4 years and callable in 2 years at $100.50 assuming a current price of 104.

a.) $2.18%

b.) $2.19%

c.) $3.05%

d.) $3.04%

2. Assume an investor is in the 31 percent marginal tax bracket. She is considering the purchase of either a 7.5 percent corporate bond that is selling at par or a 5.25 percent tax-exempt municipal bond that is also selling at par. Given that the two bonds are comparable in all respects except their treatments, the investor should buy the:

a) Corporate bond, since it has the higher yield of 7.5%

b) Municipal bond, since the taxable-equivalent yield on it is 10.87%

c) Municipal bond, since its taxable-equivalent yield is 7.6%

d) Corporate bond, since its after-tax yield is higher