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Question $21(4$ points$)$

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If $10-$year T$-$bonds have a yield of $6\mathrm{.}2\%,10-$year corporate bonds yield $7\mathrm{.}9\%,$ the maturity risk premium on all $10-$year bonds is $1\mathrm{.}3\%,$ and corporate bonds have a $0\mathrm{.}4\%$ liquidity premium versus a zero liquidity premium for T$-$bonds, what is the default risk premium on the corporate bond?

$1\mathrm{.}46\%$

$1\mathrm{.}30\%$

$1\mathrm{.}60\%$

$1\mathrm{.}51\%$

$1\mathrm{.}40\%$

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Question $20(4$ points$)$

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You want to go to Europe $5$ years from now, and you can save $$3,800$ per year, beginning one year from today. You plan to deposit the funds in a mutual fund that you think will return $8\mathrm{.}5\%$ per year. Under these conditions, how much would you have just after you make the $5$ th deposit, $5$ years from now?

$$19,364\mathrm{.}12$

$$27,244\mathrm{.}86$

$$19,814\mathrm{.}45$

$$22,741\mathrm{.}58$

$$22,516\mathrm{.}42$

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Question $19(4$ points$)$

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Suppose the real risk$-$free rate is $4\mathrm{.}20\%,$ the average expected future inflation rate is $2\mathrm{.}50\%,$ and a maturity risk premium of $0\mathrm{.}10\%$ per year to maturity applies, i$.$e$.,MRP=0\mathrm{.}10\%(t),$ where t is the number of years to maturity, hence the pure expectations theory is NOT valid. What rate of return would you expect on a $4-$year Treasury security? Disregard cross$-$product terms, i$.$e$.,$ if averaging is required, use the arithmetic average.

$7\mathrm{.}67\%$

$7\mathrm{.}10\%$

$7\mathrm{.}53\%$

$6\mathrm{.}96\%$

$5\mathrm{.}40\%$

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