1. lower/greater

2. smaller/larger

3. less/more

4. less/more

5. Rise/decline/vary

6. reinvestment/interest/compound

7. liquidity/maturity/inflation

8. reinvestment/interest/compound

9. reinvestment/interest/compound

10. interest/principal

11. less/more

Need help on a, b and c aswell

Default means that a borrower will not make scheduled interest or principal payments, and it affects the market interest rate on a bond. The-Select the bond's risk of default, the higher the market rate. The average default risk premium varies over time, and it tends to get Select when the economy is weaker and borrowers are more likely to have a hard time paying off their debts. A liquid asset can be converted to cash quickly at a "fair market value." Real assets are generally select liquid than financial assets, but different financial assets vary in their liquidity. Assets with higher trading volume are generally Select liquid. The average liquidity premium varies over time. The prices of long-term bonds Select whenever Interest rates rise. Because interest rates can and do occasionally rise, all long-term bonds, even Treasury bonds, have an clement of risk called Select rate risk. Therefore, a Select risk premium, which is higher the longer the term of the bond, is included in the required interest rate while long-term bands are heavily exposed to Select rate risk, short term bills are heavily exposed to -Select risk. Although investing in short-term T-bills preserves one's Select the interest income provided by short-term T-bilisis-Select-stable than the interest income in long-term bonds Quantitative Problem: An analyst evaluating securities has obtained the following information. The real rate of interest is 2.7% and is expected to remain constant for the next 5 years. Inflation is expected to be 2.2% next year, 3.2% the following year, 4.2% the third year, and 5.2% every year thereafter. The maturity risk premium is estimated to be 0.1 x (t-1)%, where t - number of years to maturity. The liquidity premium on relevant 5-year securities is 0.5% and the default risk premium on relevant 5-year securities is 1%. a. What is the yield on a 1 year T-bil Round your answer to one decimal place. b. What is the yield on a 5-year T-bond? Round your answer to one decimal place c. What is the yield on a 5-year corporate bond? Round your answer to one decimal place 16