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1. Assume that the real risk-free rate is 3.5% and that inflation is expected to be 5% in year, 1,4% in Year 2, and 3.5% thereafter. Assume also that all Treasury bonds are highly liquid and free of default risk. If 2-year and 5-year treasury bonds both yield 11%, what is the difference in the maturity risk premiums (MRPs) on the two bonds; that is, what is MRP5 - MRP2?
a. 1.5 percent
b. 1.2 percent.
c. 0.9 percent.
d. 0.6 percent.
2. A noncallable bond has an original maturity of 20 years, an 9% coupon rate (coupons paid annually), and a face value of $1.000. The bond was issued exactly 5 years ago. If the bond is traded at $1.200 today, what is the yield to maturity on the bond?
a. 6.83%
b. 6.22%
c. 5.95%
d. 5.06%
You are to make monthly deposits of $735 into a retirement account that pays an APR of 10.1 percent compounded monthly. If your first deposit will be made one month from now, how large will your retirement account be in 33 years?
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Assume annual compounding of interest for these problems. Assume 10% annual interest rate volatility. Calculate the binomial interest rate tree using the 2-year on-the-run issue and the 3-year on-the-run issue.
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Growth Company's current share price is $20.30 and it is expected to pay a $1.10 dividend per share next year. After that, the firm's dividends are expected to grow at a rate of 4.2% per year. What is an estimate of Growth Company's cost of equity? T..
Given: Bond Face or Par Value: $1,000 Current Market Price: $995.34 Time to Maturity: 11 years Coupon: $30 per year, paid semiannually Bond is callable in five years at $1,030. What is the bond’s coupon rate? What is the bond’s current yield?
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