1.

Use the following information to answer the question(s) below. Consider the following information regarding corporate bonds:

Rating	AAA	AA	A	BBB	BB	B	CCC
Average Default Rate	0.0%	0.1%	0.2%	0.5%	2.2%	5.5%	12.2%
Recession Default Rate	0.0%	1.0%	3.0%	3.0%	8.0%	16.0%	48.0%
Average Beta	0.05	0.05	0.05	0.10	0.17	0.26	0.31

Nielson Motors plans to issue 10-year bonds that it believes will have an BBB rating. Suppose AAA bonds with the same maturity have a 3.5% yield. Assume that the market risk premium is 5% and the expected loss rate in the event of default on the bonds is 60%. The yield that these bonds will have to pay during a recession is closest to:

		5.55%.
		4.00%.
		3.50%.
		3.75%.

2.Use the following information to answer the question(s) below.

	Beta	Volatility
"Eenie"	0.45	20%
"Meenie"	0.75	18%
"Miney"	1.05	35%
"Moe"	1.20	25%

Assume that the risk-free rate of interest is 3% and you estimate the market's expected return to be 9%. The risk premium for "Meenie" is closest to:

		9.75%.
		4.50%.
		7.50%.
		9.30%.

3. Use the information for the question(s) below.

Alaska North Slope Crude Oil (ANS)	$71.75/Bbl
West Texas Intermediate Crude Oil (WTI)	$73.06/Bbl

As an oil refiner, you are able to produce $76 worth of unleaded gasoline from one barrel of Alaska North Slope (ANS) crude oil. Because of its lower sulfur content, you can produce $77 worth of unleaded gasoline from one barrel of West Texas Intermediate (WTI) crude. Assuming you currently have 10,000 Bbls of WTI crude, the added benefits to you if you were to sell the 10,000 Bbls of WTI crude and use the proceeds to purchase and refine ANS crude is closest to:

		$43,308.
		$730,600.
		$770,000.
		$40,800.