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Problem 1:

If 10-year T-bonds have the yield of 5.2%, 10-year corporate bonds yield 7.5%, maturity risk premium on all 10-year bonds is 1.1%, and corporate bonds have 0.2% liquidity premium versus zero liquidity premium for T-bonds, what is default risk premium on corporate bond?

a) 2.00%

b) 2.10%

c) 2.20%

d) 2.30%

Problem 2:

Assume the interest rate on 1-year T-bond is 5.0% and that on 2-year T-bond is 6.0%. Supposing the pure expectations theory is correct, what is market's forecast for one -year rates 1 year from now?

a) 6.65%

b) 6.74%

c) 6.83%

d) 7.01%

Basic Finance, Finance

  • Category:- Basic Finance
  • Reference No.:- M910705

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