1. Joe is considering 2 similar bonds, with the only difference that: (1) a tax-exempt municipal bond promises a 5.625%annual return, (2) a taxable corporate bond promises a 7.5% annual return.  If Joe's tax rate is 25%, which bond should he buy?

Either one, both have the same after-tax yield

Municipal bond, as it has a higher after-tax yield

Corporate bond, as it has a higher after-tax yield

Not enough information is given to answer the question

2. A 12-month T-bill carries a yield to maturity of 6% APR. If during the 12 months you hold the T-bill, inflation registers 3%, what's your real annual rate of return?  Be precise to 4 decimal points.   

2.9126%

3.0001%

2.8300%

0.9700%