Question

QUESTION 5

1. The Fed speeds up or slows down the growth in the economy by injecting money into the system or removing it from the system by buying or selling Treasury Bonds.d

   True

   False

10 points   

QUESTION 6

1. You own a Municipal bond with an interest rate of 4.5%. Your marginal federal income tax rate is 28%. What is the tax equivalent yield for a Corporate bond? Show your work.

Answer 1

question 5.

True.

the fed speeds up or slows down the growth in the economy by injecting money into the system or removing it from the system by buying or selling treasury bonds.

question 6.

tax equivalent rate for a corporate bond = municipal bond / (1 - tax rate)

=>4.5% / (1- 0.28)

=>6.25%.