11. What does it mean for the Yield Curve to be "upward sloping", (i.e. the line on the yield curve gets higher from left to right)? Select the correct option below.

1. Short-term interest rates will be higher in the future than they are currently
2. Interest rates have risen steadily over the previous years plotted on the curve
3. The annualized yield-to-maturity on treasury bonds which mature far in the future is higher than the yield on treasury bonds which mature soon.
4. A recession is likely to happen in the next 18 months

12. You are using the CAPM to find the appropriate cost of equity for a new project that pays off a little over a year from now.

Given the following information, calculate the required rate of return on equity using the CAPM.

30-day T-Bill: 1.2%

1-year Treasury Bond: 3.1%

Market Risk Premium: 4%

Covariance(Return on Company Stock, Return on S&P 500): 4

Variance(Return on S&P 500): 2.5

(FYI - Be careful to express this return as a decimal.)