350Q2[1] - Version A FIN 350 11S Fin 350 Business Finance...

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Version A FIN 350, 11S 1 Fin 350 – Business Finance Quiz 2 NAME:______________________ SECTION: ___________ Due Date: April 11, 2011 Answer All Questions. Read all the answers carefully and select the best answer for each question. 1. A 30-day T-bill is currently yielding 5.5%. The following information is available: inflation premium = 3.60%, liquidity premium = 0.6%, maturity risk premium = 1.8% and default risk premium = 2.15%. On the basis of these data, the nominal risk-free rate is ____________ and the real risk-free rate is _________________. a) 5.5%; 1.9% b) 5.5%; 2.5% c) 1.5%; 3.0% d) 0.5%; 0.1% e) 2.5%; 5.5% 2. Suppose the rate of return on a 10-year T-bond is currently 5.00% and that on a 10-year Treasury Inflation Protected Security (TIP) is 2.10%. Suppose further that the MRP on a 10-year T-bond is 0.9%, that no MRP is required on TIPs, and that no liquidity premiums are required on any T-bonds. Given this data, what is the expected rate of inflation over the next 10 years. a) 1.80% b) 1.90% c) 2.10% d) 2.00% e) 2.20% 3. If the yield curve is downward sloping, which of the following statements is correct? (hint: graph the yield curves for a T-
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This note was uploaded on 09/30/2011 for the course FIN 350 taught by Professor Chen during the Spring '07 term at S.F. State.

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350Q2[1] - Version A FIN 350 11S Fin 350 Business Finance...

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