Question
1. The default risk premium: compensates investors for interest rate risk, which is that long-term securities are more price sensitive to interest changes than short-term
1. The default risk premium:
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compensates investors for interest rate risk, which is that long-term securities are more price sensitive to interest changes than short-term securities.
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is equal to expected inflation over the life of the security
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is added to the equilibrium interest rate on a security if the security cannot be converted to cash quickly at close to "fair market value."
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is the difference between the interest rate on a U.S. Treasury bond and a corporate bond of equal maturity and marketability
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2. An example of a primary market transaction is:
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buying 100 shares of Wal-Mart stock from your uncle.
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buying 100 shares of IBM stock through the New York Stock Exchange via an online brokerage firm
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buying 100 shares of a new issue of Home Depot common stock
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3. Net cash flow is generally defined as net income plus:
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retained earnings
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taxes paid
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interest paid
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depreciation and amortization
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