1. One-year Treasury bills yield 6%, while 2-year Treasury notes yield 6.7%. If the expectations theory holds, what is the markets forecast of what 1-year T-bills will be yielding one year from now?

   	A.	8.00%
   	B.	7.40%
   	C.	6.70%
   	D.	7.80%

1 points

QUESTION 2

1. One-year Treasury securities yield 5%, 2-year Treasury securities yield 5.5%, and 3-year Treasury securities yield 6%. Assume that the expectations theory holds. What does the market expect will be the yield on 1-year Treasury securities two years from now?

   	A.	6.51%
   	B.	7.51%
   	C.	6.01%
   	D.	7.01%

1 points

QUESTION 3

1. Keys Corporation's 5-year bonds yield 6.50%. The default risk premium for Keys' bonds is DRP = 0.40%, the liquidity premium on Keys' bonds is LP = 1.70% versus zero on T-bonds, inflation premium (IP) is 1.5%, and the maturity risk premium (MRP) on 5-year bonds is 0.40%. What is the real risk-free rate, r*?

   	A.	2.30%
   	B.	2.50%
   	C.	2.10%
   	D.	2.20%

1 points

QUESTION 4

1. Suppose that the annual expected rates of inflation over each of the next five years are 4%, 7%, 8%, 11%, and 10%, respectively. What is the average expected inflation rate over the 5-year period? Disregard cross-product terms, i.e., if averaging is required, use the arithmetic average.

   	A.	7%
   	B.	9%
   	C.	8%
   	D.	6%

1 points

QUESTION 5

1. The real risk-free rate, r*, is 3%. Inflation is expected to average 2% a year for the next three years, after which time inflation is expected to average 3.5% a year. Assume that there is no maturity risk premium. A 7-year corporate bond has a yield of 7.6%. Assume that the liquidity premium on the corporate bond is 0.4%. What is the default risk premium on the corporate bond? Disregard cross-product terms, i.e., if averaging is required, use the arithmetic average.

   	A.	0.70%
   	B.	1.45%
   	C.	2.01%
   	D.	1.34%

1 points

QUESTION 6

1. If 10-year T-bonds have a yield of 5.2%, 10-year corporate bonds yield 7.5%, the corporate bonds have a 0.2% default risk premium, what is the liquidity premium on the corporate bond?

   	A.	2.30%
   	B.	2.10%
   	C.	1.00%
   	D.	1.20%

1 points

QUESTION 7

1. Keys Corporation's 5-year bonds yield 6.50%, and 5-year T-bonds yield 4.40%. The real risk-free rate is r* = 2.5%, the default risk premium for Keys' bonds is DRP = 0.40%, the liquidity premium on Keys' bonds is LP = 1.7% versus zero on T-bonds, and the inflation premium (IP) is 1.5%. What is the maturity risk premium (MRP) on a 5-year bond?

   	A.	0.20%
   	B.	0.50%
   	C.	0.30%
   	D.	0.40%

1 points

QUESTION 8

1. The real risk-free rate is 2%. The inflation rate is expected to be 3% a year for the next three years and then 4% a year thereafter. Assume that the default risk and liquidity premiums on all Treasury securities equal zero. You observe that 10-year Treasury bonds yield 1% more than the yield on 5-year Treasury bonds. What is the difference in the maturity risk premium on the two bonds? (That is, what is MRP₁₀ - MRP₅?) Disregard cross-product terms, i.e., if averaging is required, use the arithmetic average.

   	A.	0.3%
   	B.	0.1%
   	C.	0.7%
   	D.	0.5%

1 points

QUESTION 9

1. Ken Williams Ventures' recently issued bonds that mature in 15 years. They have a par value of $1,000 and an annual coupon of 6%. If the current market interest rate is 8%, at what price should the bonds sell?

   	A.	$814.74
   	B.	$828.81
   	C.	$801.80
   	D.	$830.53

1 points

QUESTION 10

1. You intend to purchase a 10-year, $1,000 face value bond that pays interest of $60 every 6 months. If your nominal annual required rate of return is 10% with semiannual compounding, how much should you be willing to pay for this bond?

   	A.	$1,431.49
   	B.	$1,086.15
   	C.	$1,124.62
   	D.	$ 826.31