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problem1: Keys Corporation's 5-year bonds yield 6.50%, and 5-year T-bonds yield 4.40%. The real risk-free rate is r* = 2.5%, the default risk premium for Keys' bonds is DRP = 0.40%, liquidity premium on Keys' bonds is LP = 1.7% versus zero on T-bonds, and inflation premium (IP) is 1.5%. Determine maturity risk premium (MRP) on a 5-year bond?

[A] 0.40%

[B] 0.50%

[C] 0.20%

[D] 0.30%

[E] 0.60%

problem2: Find the correct statement?

[A] Capital market instruments include both long-term debt and common stocks.

[B] If your uncle in New York sold 100 shares of Microsoft through his broker to an investor in Los Angeles, this would be a primary market transaction.

[C] The NYSE does not exist as a physical location; rather it represents a loose collection of dealers who trade stock electronically.

[D] An ex of a primary market transaction would be your uncle transferring 100 shares of Wal-Mart stock to you as a birthday gift.

[E] While the two frequently perform similar functions, investment banks generally specialize in lending money, here as commercial banks generally help companies raise large blocks of capital from investors.

Cost Accounting, Accounting

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