10. T-bills are pure discount, zero-coupon instruments with original maturities of one year or less. T-
11. Agencies have slightly more credit risk. They are subject to state taxes, they have a variety of call
features, and they are less liquid (and have wider spreads). These factors translate into a somewhat
12. Treasuries are subject to federal taxes, but not state and local taxes. Munis are tax-exempt at the
14. To a certain extent, it’s an apples and oranges issue. Munis are much less liquid, have greater default
15. It is true. The reason is that Treasuries are callable at par. Referring back to Chapter 10, if two
Solutions to Questions and Problems
NOTE: All end of chapter problems were solved using a spreadsheet. Many problems require multiple
steps. Due to space and readability constraints, when these intermediate steps are included in this
solutions manual, rounding may appear to have occurred. However, the final answer for each problem is
found without rounding during any step in the problem.
While we show calculations using equations, many from this chapter are more easily completed using a
financial calculator. Each input, however, is easily identified from the equations we provide.
1. $1,000 / 45 = $22.22
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