Solution - chapter 6 - CHAPTER 6 ANSWERS AND SOLUTIONS 1,...

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1, Inflation and interest rates; no MRP; 1-year Answer: c EASY Real rate, r* 3.50% Inflation 2.25% Yield on 1-year T-bond 5.75% 4, Inflation and interest rates; MRP exist; 1-Year Answer: b EASY Real rate, r* 3.50% Inflation 2.25% MRP Years: 1 Per year: 0.10% 0.10% Difference = Yield on 1-year T-bond 5.85% 11, Corporate vs. Treasury bond yields Answer: a EASY/MEDIUM r* 3.50% IP 2.25% MRP, 5-year T-bond Per year: 0.08% Years: 5 0.40% MRP, 10-year corporate Per year: 0.08% Years: 10 0.80% LP 0.50% DRP 0.85% T-bond yield 6.15% A bond yield 7.90% Difference 1.75% 17, Maturity Risk Premium (MRP) Answer: c MEDIUM Maturity 5 r Keys' Yield 6.50% r T-bond Yield 4.40% r* Included in both bonds 2.50% LP Included in Keys only 1.70% DRP Included in Keys only 0.40% IP Included in both bonds (t-1)*0.1% 1.50% MRP 0.40% 18, Real Risk-Free Rate, r* Answer: e MEDIUM CHAPTER 6 ANSWERS AND SOLUTIONS
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Maturity 5 r Keys' Yield 6.50% r T-bond Yield 4.40% DRP Included in Keys only 0.40% LP Included in Keys only 1.70%
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This note was uploaded on 01/19/2011 for the course FINANCE AC acct200 taught by Professor Hamdibilici during the Fall '10 term at CSU Long Beach.

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Solution - chapter 6 - CHAPTER 6 ANSWERS AND SOLUTIONS 1,...

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