Need help with the following thks:

Chapter 17

Q-5

Explain the differences in taxation of income from municipal bonds, from U.S. Treasury

bonds, and from corporate bonds.

Q-7

Why should investors be aware of the trading volume for bonds in their portfolio?

Chapter 18

Q-7

You expect interest rates to decline over the next six months.

a. Given your interest rate outlook, state what kinds of bonds you want in your portfolio

in terms of duration, and explain your reasoning for this choice.

b. You must make a choice between the following three sets of non-callable bonds. For

each set, select the bond that would be best for your portfolio, given your interest

rate outlook and the consequent strategy set forth in Part a. In each case, briefly discuss

why you selected the bond.

MaturityCouponYield to Maturity

Set 1: Bond A 15 years 10%10%

Bond B 15 years6%8%

Set 2: Bond C15 years6%10%

Bond D10 years 8% 10%

Set 3: Bond E12 years12% 12%

Bond F 15 years 12%8%

Q-9

The Francesca Finance Corporation has issued a bond with the following characteristics:

Maturity25 years

Coupon9%

Yield to maturity9%

Callableafter 3 years @ 109

Duration to maturity8.2 years

Duration to first call2.1 years

a. Discuss the concept of call-adjusted duration, and indicate the approximate value

(range) for it at the present time.

b. Assuming interest rates increase substantially (i.e., to 13 percent), discuss what will

happen to the call-adjusted duration and the reason for the change.

c. Assuming interest rates decline substantially (i.e., they decline to 4 percent), discuss

what will happen to the bond's call-adjusted duration and the reason for the change.

d. Discuss the concept of negative convexity as it relates to this bond.