【正文】 the higher the bracket, the more val。Equation . If the equivalent taxable yield exceeds the actual yields offered on taxable bonds, the investor is better off after taxes holding municipal bonds. Notice that the equivalent taxable interest rate increases with the investor39。 equivalent taxable yields for several municipal yields and tax rates.equivalent taxable yieldThe pretax yield on a taxable bond providing an aftertax yield equal to the rate on a taxexempt municipal bond.rm, the investor does better holding the taxable bonds. Otherwise, the taxexempt municipals provide higher aftertax returns.p. 37Table Equivalent taxable yields corresponding to various taxexempt yieldst) is the aftertax rate available on those denote the total beforetax rate of return available on taxable bonds, thens bined federal plus local marginal tax bracket andtThe key feature of municipal bonds is their taxexempt status. Because investors pay neither federal nor state taxes on the interest proceeds, they are willing to accept lower yields on these securities.tax anticipation notes,s ability to borrow at taxexempt rates, and the federal government limits the amount of these bonds that may be industrial development bondplots outstanding amounts of both types of municipal securities.are issued to finance particular projects and are backed either by the revenues from that project or by the particular municipal agency operating the project. Typical issuers of revenue bonds are airports, hospitals, and turnpike or port authorities. Obviously, revenue bonds are riskier in terms of default than general obligation bonds.bonds are backed by the “full faith and credit” (., the taxing power) of the issuer, whileThere are basically two types of municipal bonds.Flow of Funds Accounts of the United States,s purchase price.p. 36Figure In contrast to bonds that are issued in foreign currencies, many firms issue bonds in foreign countries but in the currency of the investor. For example, a Yankee bond is a dollardenominated bond sold in the United States by a . issuer. Similarly, Samurai bonds are yendenominated bonds sold in Japan by nonJapanese issuers.Municipal BondsMunicipal bondsTaxexempt bonds issued by state and local governments, generally to finance capital improvement projects. General obligation bonds are backed by the general taxing power of the issuer. Revenue bonds are backed by the proceeds from the project or agency they are issued to finance.Eurobonds bonds. A box later in the chapter (page 40) discusses the events leading up to their takeover.International BondsMany firms borrow abroad and many investors buy bonds from foreign issuers. In addition to national capital markets, there is a thriving international capital market, largely centered in London.The major mortgagerelated agencies are the Federal Home Loan Bank (FHLB), the Federal National Mortgage Association (FNMA, or Fannie Mae), the Government National Mortgage Association (GNMA, or Ginnie Mae), and the Federal Home Loan Mortgage Corporation (FHLMC, or Freddie Mac). The FHLB borrows money by issuing securities and lends this money to savings and loan institutions to be lent in turn to individuals borrowing for home mortgages.In the United States inflationprotected Treasury bonds are called TIPS (Treasury InflationProtected Securities). The principal amount on these bonds is adjusted in proportion to increases in the Consumer Price Index. Therefore, they provide a constant stream of ine in real (inflationadjusted) dollars. Yields on TIPS bonds should be interpreted as real or inflationadjusted interest rates. We return to TIPS bonds in more detail inFigure ? What was its asked price the previous day?1We discuss the yield to maturity in more detail in Part Four.CONCEPTCHECKreported in the financial pages is calculated by determining the semiannual yield and then doubling it, rather than pounding it for two halfyear periods. This use of a simple interest technique to annualize means that the yield is quoted on an annual percentage rate (APR) basis rather than as an effective annual yield. The APR method in this context is also called theThe(as a percentage of par value) from the previous day39。The bid price of the note is or 102, or . The asked price is 103. Although notes and bonds are sold in denominations of $1,000 par value, the prices are quoted as a percentage of par value. Thus the bid price of should be interpreted as % of par, or $, for the $1,000 par value security. Similarly, the note could be bought from a dealer for $1,030. The ? 20 change means the closing price on this day fellWall Street Journal Online,of a point.Figure Figure coupon payments,Treasury obligations of the federal government that make semiannual coupon payments and are issued at or near par value.Treasury notesDebt obligations of the federal government that make semiannual coupon payments and are issued at or near par value.These instruments are sometimes said to prise theThe spread between 3month CD and Treasury bill ratesHowever, the turmoil in Wall Street39。The realization that money market funds were at risk in the credit crisis led to a wave of investor redemptions similar to a run on a bank. Only three days after the Lehman bankruptcy, Putman39。Money Market Funds and the Credit Crisis of 2008Money market funds are mutual funds that invest in the shortterm debt instruments that prise the money market. In 2008, these funds had investments totaling about $ trillion. They are required to hold only shortmaturity debt of the highest quality: the average maturity of their holdings must be maintained at less than 3 months. Their biggest investments tend to be in mercial paper, but they also hold sizable fractions of their portfolios in certificates of deposit, repurchase agreements, and Treasury securities. Because of this very conservative investme