16. A companys 10-year bonds are yielding 8.5% per year. Treasury bonds with the same maturity are yielding 6.9% per year, and the real risk-free rate (r*) is 2.7%. The inflation premium is 3%, the liquidity premium is 0.5%, and the maturity risk premium is 1.2%. What is the default risk premium on the corporate bonds? *

a) 1.1%

b) 2.1%

c) 2.3%

d) 3.5%

e) None of the above

17. A companys 5-year bonds are yielding 9.3% per year. Treasury bonds with the same maturity are yielding 6.1% per year, and the real risk-free rate (r*) is 2.3%. The inflation premium is 2.4%, the liquidity premium is 1.3%, and the default risk premium is 0.9%. What is the maturity risk premium on the corporate bonds? *

a) 0.5%

b) 1.4%

c) 2.7%

d) 3.3%

e) None of the above

18. An investment has two options: 1) The first option includes annual payments of $1000, $1100, and $2200 at the end of each of the next three years, respectively. 2) The other option is the payment of one lump sum amount today. You are trying to decide which offer to accept given the fact that your discount rate is 10 percent. What is the minimum amount that you will accept today if you are to select the lump sum offer? *

a) 2719

b) 3300

c) 3000

d) 2479

e) None of the above

19. A 5-year corporate bond is yielding 12.3% per year. The real risk-free rate (r*) is 3.5%. Inflation is expected to be 3% this year, 4% next year, and 6% for all years after that. The liquidity premium is 1.2%, and default risk premium is 2.1%. What is the maturity risk premium for this 5-year bond? *

a) 0.5%

b) 0.75%

c) 1%

d) 2%

e) None of the above