1. Explain briefly, how mechanisms and participants of the mortgage market helped to fuel a credit risk on MBS in 2000s?

2. Is it true? Explain. If the required rate of return on a bond (rd) is higher than its coupon interest rate and will remain above that rate, then the market value of the bond will always be below its par value until the bond matures, at which time its market value will equal its par value?

3. A bond has a 7% annual coupon and a 10% yield to maturity. Which of the following statements is CORRECT?

a.The bond has a current yield lower than 7%.

b.The bond sells with a premium.

c.The bond's required rate of return is higher than 10%.

d.If the yield to maturity remains constant, the price of the bond will increase over time.

4. Darwin Corporation has issued bonds that bear 10% annual coupon rate paid semiannually. The bonds mature in 2 years, have a face value of $1000 and a yield to maturity of 12%. What is the fair value of these bonds? How the bond's value will change over time before the maturity (increase, decrease, stay constant)?

5. 20-year Treasury bonds have a yield 2.9%. 20-year corporate bonds yield 4.4%. The real risk-free rate is r* = 1.2%, the inflation premium is IP = 1.1%, the default risk premium for corporate bonds is DRP = 0.8% versus zero for T-bonds. The maturity risk premium for all 20 year bonds is 0.6%. What is the liquidity premium (LP) on corporate bonds?

6. Sugar Company issued bonds with 12% coupon rate, semiannual coupon, $1000 par value. Bonds mature in 40 years and are callable 5 years from now at $1120. Bonds are sold today at $1300, and the yield curve is downward-sloping. Assuming that a company is going to call these bonds from the market, provide a model for yield to call estimation. Insert numbers (no calculations required).

7. Explain the following: The market value of the company potentially could come in conflict with a fundamental value.

8. Is it true? Explain. Value of the stocks of companies that never paid dividends should be equal to zero according to the dividend growth model of stock valuation.

Please be as explanatory as possible.