Question

A company's 5-year bonds are yielding 7.75% per year. The real risk-free rate (r*) is 2.3%. The average inflation premium is 2.5%; and the maturity risk premium is estimated to be 0.1 × (t − 1)%, where t = number of years to maturity. If the liquidity premium is 1%, what is the default risk premium on the corporate bonds?

Question 2 options:

	A) 1.55%
	B) 1.60%
	C) 1.65%
	D) 1.50%
	E) 1.70%

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The real risk-free rate is 3%, and inflation is expected to be 3% on average for the next 2 years. A 2-year Treasury security yields 6.2%. What is the maturity risk premium for the 2-year security?

Question 1 options:

	A) 0.20%
	B) 0.30%
	C) 0.15%
	D) 0.10%
	E) 0.25%

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A firm's bonds have a maturity of 10 years with a $1,000 face value, have an 8% annual coupon, are callable in 5 years at $1,050, and currently sell at a price of $1,100. What are their nominal yield to call (YTC)?

Question 4 options:

	A) 6.76%
	B) 6.47%
	C) 8%
	D) 6.59%
	E) 6.68%

Answer 1

1)

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