Question $17$

$3$ pts

Inflation is expected to increase steadily over the next $10$ years, there is a positive maturity risk premium on both Treasury and corporate bonds, and the real risk$-$free rate of interest is expected to remain constant. Which of the following statements is CORRECT?

The stated conditions cannot all be true$-$they are internally inconsistent.

The Treasury yield curve under the stated conditions would be humped rather than have a consistent positive or negative slope.

The yield on $10-$year Treasury securities must exceed the yield on $7-$year Treasury securities$.$

The yield on $7-$year corporate bonds must exceed the yield on $10-$year Treasury bonds.

The yield on any corporate bond must exceed the yields on all Treasury bonds.

Question $18$

$3$ pts

Question $16$

$3$ pts

James Inc. has the following data: $r_{RF}=5\mathrm{.}00\%$;$R{P}_M=6\mathrm{.}00\%$; and $b=1\mathrm{.}05.$ What is the firm's cost of equity from retained earnings based on the CAPM?

$12\mathrm{.}35\%$

$11\mathrm{.}64\%$

$11\mathrm{.}30\%$

$11\mathrm{.}99\%$

$12\mathrm{.}72\%$

Question $17$