s suppose you walk into the bank and see that a 1-year Treasury security carries
ID: 2814698 • Letter: S
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s suppose you walk into the bank and see that a 1-year Treasury security carries a 2% rate of return and a 2 Treasury security carries a 4% rate of return, what rate of return would you expect to earn on a 1-year Treasury securit year from now, assuming the expectations theory is valid? 2.00% b, a. 4.00% c. 6.00% d. some other amount, please see my work in this space 9, Key Corporation's 10-year bonds yield 8.00%, and 10-year T-bonds yield 5.00% 1.00%, the default risk premium for Keys' bonds is DRP-2.00%, the liquidity premium on Keys' bonds is LP inflation The real interest rate 1.000 premium (IP) is 2.00%, what is the maturity risk premium (MRP) on a 10-year bonds? a. b. c. d. 0.00% 2.00% 4.00% some other amount, please see my work in this space. lf2-year T-bonds have a yield of 4.00%, 2-year corporate bonds yield 6.80 %, the maturity risk premium bonds is 0.80%, and corporate bonds have a l 80% default risk premium, what is the liquidity premium on the cor 10 a. b. c. d. 0.00% 0.20% 1.00% some other amount, please see my work in this space 11 If you recently bought shares of stock of a publicly traded company from another student in FIN 340 example of a. A money market transaction b. A primary market transaction c. A secondary market transaction d. A futures market transaction 12. Assume that interest rates on 20-year Treasury and publicly traded corporate bonds are as follow T-bond = 2.25% AAA-3.25% A BBB 3.75% 5.50% The differences in rates among these issues were caused primarily by a. Real interest rate differences. b. Inflation differences c. Default risk differences. d. Maturity risk differences.Explanation / Answer
8. Assuming that the expectations theory hold, we can calculate :
one year interest rates * one year interest rates in one year = 2 year interest rates
(1.02)( 1+ x) = )1.04)^2
or, x = 6%
the correct option is option C.
9. The maturity risk premium is zero. Both the corporate bonds and the treasury bonds have the same maturity so there is no maturity risk premium. As the maturity risk premium is the compensation for holding longer maturity bonds, so there will be no premium in this case.
the correct option is option a .
10. the only difference between the corporate bond and the treasury bond with the same maturity is default risk premium and the liquidity risk premium.
Rcorp = R treasury bond + MRP + DEFAULT RISK PREMIUM + LIQUIDITY PREMIUM
6.8 = 4 + 0.8 + 1.8 + LP = 0.2%
The correct option is option b.
11. Primary amrket is a market where we buy shares directly from the exchange.
When we buy shares already purchased from some other entity, it is a secondary market.
the correct option is option c
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