This preview has intentionally blurred sections. Sign up to view the full version.View Full Document
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...
View Full Document
- Spring '09
- Finance, Correct Answer, Stock exchange, real risk-free rate, maturity risk premium