1)

r = r_RF+ DRP + LP + MRP

DPR REPRESENTS:

a. The risk a company will go bankrupt

b. The inflation rate in the economy

c. The real interest rate paid on debt investments

d. The risk of a bad secondary market for the debt

2)

Which of the following statements is correct for a 7% coupon bond that has a yield to maturity of 9%?

a. The bond currently sells at a premium.

b. The bond is likely to default.

c. The bond's price is less than its par value.

d. The bond will be redeemed for less than $1000.

3)

What is a yield curve?Draw a graph showing the curve and what are shown on the Y and X axis.What does a yield curve show?How does this curve change over time and economic conditions?