The real risk-free rate (AKA the pure rate of interest), r*, is 1.5 percent and will...

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The real risk-free rate (AKA the pure rate of interest), r*, is 1.5 percent and will remain constant. Inflation is expected to be 2.0 percent next year, 2.5 percent in Year 2, and 3.0 percent each year thereafter. The 3-year Treasury securities yield is 5.5 percent, while the 5- year Treasury securities yield is 6.7 percent. What is the difference in the maturity risk premiums (MRPs) on the two securities; that is, what is MRP, - MRP3? A. 0.65% B. 0.86% C. 1.00% D. 1.15% E. 1.24% 10. Assume that interest rates on 20-year Treasury and corporate bonds are as follows: T-bond = 7.72% AAA = 8.72% A = 9.64% The differences in these rates were probably caused primarily by: A. Tax effects. B. Default and perhaps liquidity risk differences. C. Maturity risk differences. D. Inflation differences. E. Real risk-free rate differences. BBB = 10.18% 11. Montrose Corporation's 5-year bonds yield 6.50%, and T-bonds with the same maturity yield 5.90%. The default risk premium for Montrose's bonds is DRP = 0.40%, the liquidity premium on Montrose's bonds is LP = 0.20% versus zero on T-bonds, the inflation premium (IP) is 1.50%, and the maturity risk premium (MRP) on 5-year bonds is 0.40%. What is the real risk-free rate (we also referred to this rate in class as the pure rate of interest), r*? A. 3.00% B. 3.48% C. 3.64% D. 4.00% E. 4.96% 12. Crockett Corporation's 5-year bonds yield 6.35%, and 5-year T-bonds yield 4.45%. The real risk-free rate is r* = 2.80%, the default risk premium for Crockett's bonds is DRP = 1.00% versus zero for T-bonds, the liquidity premium on Crockett's bonds is LP = 0.90% versus zero for T-bonds, and the maturity risk premium for all bonds is found with the formula MRP =(t-1)0.1%, where t = number of years to maturity. What inflation premium (IP) is built into 5-year bond yields? A. 1.40% B. 1.10% C. 1.11% D. 1.33% E. 1.25% The real risk-free rate (AKA the pure rate of interest), r*, is 1.5 percent and will remain constant. Inflation is expected to be 2.0 percent next year, 2.5 percent in Year 2, and 3.0 percent each year thereafter. The 3-year Treasury securities yield is 5.5 percent, while the 5- year Treasury securities yield is 6.7 percent. What is the difference in the maturity risk premiums (MRPs) on the two securities; that is, what is MRP, - MRP3? A. 0.65% B. 0.86% C. 1.00% D. 1.15% E. 1.24% 10. Assume that interest rates on 20-year Treasury and corporate bonds are as follows: T-bond = 7.72% AAA = 8.72% A = 9.64% The differences in these rates were probably caused primarily by: A. Tax effects. B. Default and perhaps liquidity risk differences. C. Maturity risk differences. D. Inflation differences. E. Real risk-free rate differences. BBB = 10.18% 11. Montrose Corporation's 5-year bonds yield 6.50%, and T-bonds with the same maturity yield 5.90%. The default risk premium for Montrose's bonds is DRP = 0.40%, the liquidity premium on Montrose's bonds is LP = 0.20% versus zero on T-bonds, the inflation premium (IP) is 1.50%, and the maturity risk premium (MRP) on 5-year bonds is 0.40%. What is the real risk-free rate (we also referred to this rate in class as the pure rate of interest), r*? A. 3.00% B. 3.48% C. 3.64% D. 4.00% E. 4.96% 12. Crockett Corporation's 5-year bonds yield 6.35%, and 5-year T-bonds yield 4.45%. The real risk-free rate is r* = 2.80%, the default risk premium for Crockett's bonds is DRP = 1.00% versus zero for T-bonds, the liquidity premium on Crockett's bonds is LP = 0.90% versus zero for T-bonds, and the maturity risk premium for all bonds is found with the formula MRP =(t-1)0.1%, where t = number of years to maturity. What inflation premium (IP) is built into 5-year bond yields? A. 1.40% B. 1.10% C. 1.11% D. 1.33% E. 1.25%