1. If we observe that yields on short-term government debt are higher than yields on long-...

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1. If we observe that yields on short-term government debt are higher than yields on long- term government debt then we should expect a recession in Australia. [5 marks] B1b. If the liquidity premium hypothesis is true, then forward rates are an unbiased measure of investors' expectations about future interest rates. [5 marks] Blc. The risk-free rate is 5% and the beta of a risky stock is zero. It would be consistent (and) possible) in a market where the CAPM holds for the market to experience a realised return of 10% over the next year, while the risky stock has a realised return of 33% over the next year. [5 marks] 1. If we observe that yields on short-term government debt are higher than yields on long- term government debt then we should expect a recession in Australia. [5 marks] B1b. If the liquidity premium hypothesis is true, then forward rates are an unbiased measure of investors' expectations about future interest rates. [5 marks] Blc. The risk-free rate is 5% and the beta of a risky stock is zero. It would be consistent (and) possible) in a market where the CAPM holds for the market to experience a realised return of 10% over the next year, while the risky stock has a realised return of 33% over the next year. [5 marks]

Answer rating: 100% (QA)

B1a The statement that if we observe that yields on shortterm government debt are higher than yields on longterm government debt then we should expect a recession in Australia is not accurate The rela... View the full answer