17. The real risk free rate is 2% . Inflation is expected to be 3% this year, 4% next year, and 3.5% thereafter. The maturity risk premium is estimated to be 0.4 x (t - 1)%, where t= number of years to maturity. What is the interest on a 5 year US Treasury bond?*

a) 7.1%

b) 1.6%

c) 3.5%

d) 5.5%

e) None of the above

18. Suppose 10-year T-bonds have a yield of 7% and 10-year corporate bonds yield 9.5%. Also, corporate bonds have a 1% liquidity premium versus a zero liquidity premium for T-bonds, and the maturity risk premium on both Treasury and corporate 10-year bonds is 1.15%. What is the default risk premium (DRP) on the corporate bond?*

a) 1.35%

b) 1.5%

c) 0.35%

d) 0%

e) None of the above

19. What's the present value of $1,525 discounted back 5 years if the appropriate interest rate is 6%, compounded monthly?*

a) $969

b) $1,020

c) $1,074

d) $1,131

e) None of the above