QUESTION 1

Federal Income Tax is tax that is levied to individuals, corporations, legal entities
and trusts by the Internal Revenue Services.(investopedia.com;Kagan,2021).
Florida’s federal income tax rate is at 12.81%.
According to the center on budget and policy priorities’ Survey of 2003- 2012, the
lion’s share of bonds issued to states for the purpose of infrastructure development
majority being schools, hospitals, water and sewerage facilities and toil
roads,highways and streets.(cbpp.org;Copyright,2021).

The cost of borrowing municipal bonds for infrastructure development is lower in

states that tax securities outside the state at a higher rate than securities inside the
state(Kidwell, Koch, Stock,1984).
This increases the demand for in-state municipal securities which will increase the
federal tax income.

QUESTION 2
Adverse selection is a situation where information is withheld from buyers by the
sellers. This information is known as assymetrical information.
(investopedia.com:Hayes,2021).
Specialised lending is a collateral based type of lending which reduces the risk of
banks acuring losses from lending money incase the client is unable to repay the loan.
There are 5 sub-classes namely object finance, project finance, commodities finance,
real-estate finance and high votality commercial real-estate.
Most of the time the client may be unable to disclose their inability to repay the loan
or circumastances may arise unforseen by the bank that may make the client unable to
repay the loan.
In such a scenario,the debt is secured by the cashflows arising fro the assests used as
securities.((SPECIALISED LENDING, 2021)

REFERENCES
1. KAGAN, & URADU. (2021, April 13). Understanding the Federal Income Tax.

Investopedia. https://www.investopedia.com/terms/f/federal_income_tax.asp
2. Policy Basics: State and Local Borrowing. (2015, January 15). Center on Budget and
Policy Priorities. https://www.cbpp.org/research/state-budget-and-tax/state-and-local-
borrowing

3. KIDWELL, D., KOCH, T., & STOCK, D. (1984). THE IMPACT OF STATE
INCOME TAXES ON MUNICIPAL BORROWING COSTS. National Tax
Journal, 37(4), 551-561. Retrieved April 30, 2021, from
http://www.jstor.org/stable/41791985

4. HAYES, & ESTEVEZ. (2021, January 19). Adverse Selection. Investopedia.

https://www.investopedia.com/terms/a/adverseselection.asp

5. SPECIALISED LENDING. (2021). Ebrary.Net.

https://ebrary.net/12870/management/specialied_lending#:~:text=Essentially%2C

%20specialized%20lending%20has%20a,high%2Dvolatility%20commercial

%20real%20estate.