Problem 3: Equivalent Taxable Yields [8 points] a. [4 points] Consider a tax exempt municipal bond with an annual yield of 2%. Find the equivalent taxable yield for investors with each of the following tax brackets: 0%; 15%; 25%, 35%. a. [4 points] Fairfax County, a AAA-rated municipality, issued tax exempt municipal bonds that yield 1% and mature in 5 years. Otherwise identical corporate bonds that are AAArated and mature in 5 years but are taxable yield 1.4%. What is the implied tax rate?

Problem 5: Asset Allocation [6 points] Target date funds (TDFs) are designed as total portfolio solutions, meaning an investor could conceivably allocate all of their investment portfolio to a single fund. There are many TDFs available in the marketplace today. The Target Date refers to an investor’s expected retirement date. For example, the Vanguard Target Retirement 2020 fund is designed for investors anticipating retiring in or near year 2020. a. [2 points] Review the information on Vanguard’s website and determine the asset allocation in the 2020 fund: https://investor.vanguard.com/mutual-funds/profile/overview/vtwnx b. [2 points] Repeat part A for the 2050 fund: https://investor.vanguard.com/mutual-funds/profile/overview/vfifx c. [2 points] Do the asset allocations in a. and b. seem reasonable? If they differ between the two funds, do those differences seem appropriate?