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Question 1-Investment Yields [4 points]: One year ago, Melissa purchased 50 shares of common stock for $20 per share. During the year, the value of her stock decreased to $15 per share. If the stock did not pay a dividend during the year, what yield did Melissa eam on her investment? Question 4-MRP and DRP [6 points]: Suppose that today's Wall Street Journal reports the yield on Treasury bills maturing in 30 days is 4 percent, the yield on Treasury bonds maturing in 10 years is 6 percent, and the yield on a bond issued by Nextel Communications that matures in six years is 7 percent. Also, today the Federal Reserve announced that inflation is expected to be 2.0 percent during the next 12 months. There is a maturity risk premium (MRP) associated with all bonds with maturities equal to one year or more. Assume Nextel's bond is very liquid, and thus it has no liquidity premium. a) Assume that the increase in the MRP each year is the same and the total MRP is the same for bonds with maturities equal to 10 years and greater - that is, MRP is at its maximum for bonds with maturities equal to 10 years and greater. What is the MRP per year? b) What is the default risk premium associated with Nextel's bond? c) What is the real-risk free rate of return? Question 1-Reserve Requirements [6 points]: Deposits in all financial institutions equal \$2 trillion. The total reserves held by these institutions are $200 billion, $100 billion of which is in excess of reserve requirements. a) What is the percentage reserve requirement? b) What would the percentage reserve requirement have to be to maintain the existing amount of reserves ( $200 billion) but eliminate excess reserves? c) What would happen to deposits at all financial institutions if the existing excess reserves were eliminated? Assume that elimination of excess reserves affects deposits only