Question
12. Assume that interest rates on 20-year Treasury and 20-year corporate bonds are as follows: T-bond = 7.72% AAA = 8.72% A = 9.64% BB
12. Assume that interest rates on 20-year Treasury and 20-year corporate bonds are as follows:
T-bond = 7.72% AAA = 8.72% A = 9.64% BB = 10.18%
The differences in these rates were probably caused primarily by:
a. Tax effects.
b. Inflation differences.
c. Maturity risk differences.
d. Default risk differences.
e. Real risk-free rate differences.
Dothan Inc.s stock has a 25% chance of producing a 30% return, a 50% chance of producing a 12% return, and a 25% chance of producing a 18% return. What is the firms expected rate of return?
7.72%
8.12%
8.55%
9.00%
9.50%
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