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Finance 2 & 6 - 5.0/5.0 Correct Answer(s A 9 Keys...

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7.  Which of the following statements is CORRECT? A)  The New York Stock Exchange is an auction market with a physical location. B)  Capital market transactions involve only the purchase and sale of equity securities. C)  Consumer automobile loans are traded in the money market. D)  If an investor sells shares of stock through a broker, then it would be a primary market transaction. E)  While the distinctions are blurring, investment banks generally specialize in lending money, whereas commercial banks generally help companies raise capital from other parties. Points Earned:  5.0/5.0  Correct Answer(s): A 8.  The real risk-free rate is 3%. The market expects that inflation of 3% for each of the next 5 years, and 5% a year thereafter. The maturity risk premium is estimated to be MRP t = 0.1%(t - 1). What is the yield on a Treasury bond that matures in 12 years? Disregard cross-product terms, i.e., if averaging is required, use the arithmetic average. A)  8.27% B)  8.45% C)  8.10% D)  8.53% E)  8.68% Points Earned: 
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Unformatted text preview: 5.0/5.0 Correct Answer(s): A 9. Keys Corporation's 5-year bonds yield 6.50%, and T-bonds with the same maturity yield 4.40%. The default risk premium for Keys' bonds is DRP = 0.40%, the liquidity premium on Keys' bonds is LP = 1.70% versus zero on T-bonds, inflation premium (IP) is 1.5%, and the maturity risk premium (MRP) on 5-year bonds is 0.40%. What is the real risk-free rate, r*? A) 2.50% B) 2.10% C) 2.20% D) 2.40% E) 2.30% Points Earned: 5.0/5.0 Correct Answer(s): A 10. Which of the following would be most likely to lead to a higher level of interest rates in the economy? A) The Federal Reserve decides to try to stimulate the economy. B) The level of inflation begins to decline. C) Corporations step up their expansion plans and thus increase their demand for capital. D) Households start saving a larger percentage of their income. E) The economy moves from a boom to a recession. Points Earned: 5.0/5.0 Correct Answer(s): C...
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