Exam2SP09R

Exam2SP09R - Exam2F08 Multiple Choice Identify the choice that best completes the statement or answers the question Not covered in the Ross

Info iconThis preview shows pages 1–3. Sign up to view the full content.

View Full Document Right Arrow Icon
Exam2F08 Multiple Choice Identify the choice that best completes the statement or answers the question. Not covered in the Ross textbook ____ 1. The real risk-free rate is expected to remain constant over time. Inflation is expected to be 2 percent a year for the next two years, after which time it is expected to average 4 percent a year. There is a positive maturity risk premium on bonds that have a maturity greater than 1 year. Which of the following statements is most correct? a. The yield on a 5-year government bond never can exceed that of a 2-year government bond. b. The yield on a 5-year corporate bond must exceed that of a 2-year government bond. c. The yield on a 7-year government bond must exceed that of a 5-year corporate bond. d. All of these statements are correct. Not covered in the Ross textbook ____ 2. Assume that r* = 2.0%; the maturity risk premium is found as MRP = 0.1%(t - 1), where t = years to maturity; the default risk premium for corporate bonds is found as DRP = 0.05%(t - 1); the liquidity premium is 1 percent for corporate bonds only; and inflation is expected to be 3 percent, 4 percent, and 5 percent during the next three years and then 6 percent thereafter. What is the difference in interest rates between 10-year corporate and Treasury bonds? a. 0.45% b. 1.45% c. 2.20% d. 2.75% e. 3.25% Not covered in the Ross textbook ____ 3. Three-year Treasury securities currently yield 6 percent, while 4-year Treasury securities currently yield 6.5 percent. Assume that the expectations theory holds. What does the market believe the rate will be on 1-year Treasury securities three years from now? a. 8.0% b. 8.5% c. 9.0% d. 9.5% e. 10.0% Chapter 13 ____ 4. Stock A has a beta of 0.8 and Stock B has a beta of 1.2. 50 percent of Portfolio P is invested in Stock A and 50 percent is invested in Stock B. If the market risk premium (r M - r RF ) were to increase but the risk-free rate (r RF ) remained constant, which of the following would occur? a. The required return will decrease by the same amount for both Stock A and Stock B. b. The required return will increase for both stocks but the increase will be greater for Stock B than for Stock A. c. The required return will increase for Stock A but will decrease for Stock B. d. The required return will increase for Stock B but will decrease for Stock A. e. The required return on Portfolio P will remain unchanged. Chapter 13 ____ 5. Inflation, recession, and high interest rates are economic events that are characterized as a. Company-specific risk that can be diversified away. b. Market risk.
Background image of page 1

Info iconThis preview has intentionally blurred sections. Sign up to view the full version.

View Full DocumentRight Arrow Icon
c. Systematic risk that can be diversified away. d. Diversifiable risk. e. Unsystematic risk that can be diversified away. Chapter 13
Background image of page 2
Image of page 3
This is the end of the preview. Sign up to access the rest of the document.

This note was uploaded on 12/01/2011 for the course BMGT 340 taught by Professor White during the Fall '08 term at Maryland.

Page1 / 9

Exam2SP09R - Exam2F08 Multiple Choice Identify the choice that best completes the statement or answers the question Not covered in the Ross

This preview shows document pages 1 - 3. Sign up to view the full document.

View Full Document Right Arrow Icon
Ask a homework question - tutors are online