1) a. Suppose you are considering two possible investment opportunities, a 12-year Treasury bond and a 7-year, A-rated corporate bond. The current real risk-free rate is 4%. Inflation is expected to be 2% for the next two years, 3% for the following four years, and 4% thereafter. The maturity risk premium is estimated by this formula: MRP = 0.1% ( t-1) %. The liquidity premium for the corporate bond is estimated to be 0.7%. Finally, you may determine the default risk premium, given the company's bond rating, from the default risk premium table in the text. What yield would you predict for each of these two investments?

b. Given the following Treasury bond yield information from the September 28, 2001, Federal Reserve Statistical Release, construct a graph of the yield curve as of that date.

c. Based on the information about the corporate bond that was given in Part a, calculate yields and then construct a new graph that shows both the Treasury and the corporate bonds.

Assuming a real risk-free rate of 2% and a MRP +0.1x(t)%, t is the # of years to maturity, estimate the interest rate in Jan 1981 on bonds that mature in 1,2,5 and 20 years, and use Excel to draw a yieldcurve based on this information.

Which of the following is most correct?
a.If the expectations theory is correct (that is, maturity risk premium = 0) then an upward sloping yieldcurve means that the market believes that interest rates will rise in the future.
b.A 5-year corporate bond may have a yield less than a 10 year treasury bond.
c.The yield c

1. Assume that you are in the 40% federal-plus-state marginal tax bracket and that capital gains taxes are deferred until maturity. Assuming equal investment risk and a horizontal yieldcurve, rank the following investmentopportunities on the basis of the effective annual yields:
a. A $100 par value perpetual preferred stoc

Bond No. Maturity Coupon Price Yield to Maturity
1 2 years $50 $992 ?
2 3 years $45 ? 5.52%
3 4 years $60 $1,015 ?
4 6 years $54 ? 5.82%
(a) Compute the yi

Imagine you are a money manager hoping to accumulate portfolio yield. Since you anticipate that the current short-term interest rates will increase more than the current yieldcurve, explain whether you would you rather pay a determined long-term rate and have a floating short-term rate or vice-versa.

Be detail as possible and show all work.
2. What is the present value of $200,000 received at the end of every 6 month for the next 8 years at a discount rate of 7%?
5. Find MNO's Weighted Average Cost of capital given the following information:
Tax Bracket: 30%

1) Point-estimate exchange rate forecasts cannot adequately account for the potential impact of exchange rate fluctuations True or False
2) Country risk can be used:
I. to monitor countries where the MNC is presently doing business.
II. as a screening device to avoid conducting business in countries with excessive risk.

Which of the following would most likely increase the slope of the yieldcurve?
a. An increase in the rate that prices are expected to increase over the next 30 years.
b. A decrease in the risk-free interest rate.
c. An increase in the risk-free interest rate, where the increase is the same amount for all maturity dates (e.g.

See attached files.
1) Morgan Motors has three-year bonds that currently yield 8.25%. The real risk-free rate (r*) is 2.50% and is expected to remain constant. Inflation is expected to be 3.0% per year for each of the next four years and 4.50% thereafter. The maturity risk premium (MRP) is determined from the formula: O.1(t