Objective type questions on value of the Bond

1. Which of the following statement is CORRECT?

a. If a market is strong-form efficient, this implies that the returns on bonds and stocks should be identical.

b. If a market is weak-form efficient, this implies that above-average returns can be best achieved by focusing on fast movement of stock prices.

c. If your uncle earned a higher return on his portfolio over a 10-year period than the return on the overall stock market, this would demonstrate that the stock market is inefficient.

d. Because of increased globalization, all of the world\'s stock markets are equally efficient as that term is defined in the next.

e. If a market is semi strong-form efficient, this implies that above-average returns cannot be achieved by analyzing publicly available data because such information is already reflected in stock prices.

2. 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 Key\'s bonds is DRP = 0.40%, the liquidity premium on Key\'s bonds is LP = 1.7% versus zero on T-bonds, and the inflation premium (IP) is 1.5%. What is the maturity risk premium (MRP) on a 5-year bond?

a. 0.20%

b. 0.30%

c. 0.40%

d. 0.50%

e. 0.60%

3. Leggio Corporation issued 20-year, 7% annual coupon bonds at their par value of $1,000 one year ago. Today, the market interest rate on these bonds has dropped to 6%. What is the new price of the bonds, given that they now have 19 years to maturity?

a. $1,046.59

b. $1.111.58

c. $1.133.40

d. $1.177.78

e. $1.189.04