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1. If inflation is expected to be relatively low, then interest rates will tend to be relatively high other things held constant, B. False True 2 Samuel found two opportunities of investment A (rate of retum 2%, standard deviation 1%) and investment B (rate of retum 4% standard deviation 8%). Investment B is better than Investment A (hints calculate each CV and then compare each other B. False A. True a. The larger the standard deviation is the lower the probability that actual retums will be close to expected retums. A True B. False If inflation is expected to increase in the future and the maturity risk premium (MRP) is greater than zero, the Treasury bond yield curve must be upward sloping A True B. False SA 15-year bond with a face value of $1,000 currently sells for $900. So, the bond's yield to maturity or discount rate is less than its coupon rate. A. True B. False Demetrice Corporation has 5-year bonds. Inflation premium (IP) on a Syear bond is 100% The real risk-free rate is 2.80%, the default risk premium for Demetrice's bonds is DRP=0.85% versus zero for T-bonds, the liquidity premium on Demetrice's bonds is LP - 120%, and the maturity risk premium for all bonds is found with the formula MRP = -1)x0.1%, where t = number of years to maturity. What is the vielen Demetrice Corporation's 6- year bonds 7. Brisby Inc.'s bonds currently sell for $800 and have a par value of $1,000. They pay a $100 annual coupon and have a 10-year maturity, but they can be called in 5 years at $1,200. What is their Capital Gain Vield (CGY .. A 10-year, 5% semiannual coupon bond selling for 51,135.90 can be called in 4 years for $1.200 hint: par value is $1.000). What is its yield to maturity. (YTM2 16933%*2=3.3866% 2. A 10-year, 3% semiannual coupon bond selling for $1,135 90 can be called in 4 years for $1.200 Chint: par value is $1,000) Whats its current vield (CYZ 10. A 10-year, 10% semiannual coupon bend selling for SL.135.90 can be called in 4 years for $1.200 (hint par value is $1.000)

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