4. Crockett Corporation's 5-year bonds yield 6.35%, and 5-year T-bonds yield 4.75%. The real risk-free rate is r* = 5.63%, the default risk premium for Crockett's bonds is DRP = 2.00% versus zero for T-bonds, the liquidity premium on Crockett's bonds is LP = 2.90% versus zero for T bonds, and the maturity risk premium for all bonds is found with the formula MRP = (t 1) 0.1%, where t = number of years to maturity. What inflation premium (IP) is built into 5-year bond yields? *

a) 0.68%

b) 0.75%

c) 0.83%

d) 5.96%

e) None of the above

5. Zoom Corporation's 5-year bonds yield 8.00%, and 5-year T-bonds yield 4.80%. The real risk-free rate is r* = 2.75%, the inflation premium for 5-year bonds is IP = 1.65%, the default risk premium for Zoom's bonds is DRP = 1.20% versus zero for T-bonds, and the maturity risk premium for all bonds is found with the formula MRP = (t 1) 0.1%, where t = number of years to maturity. What is the liquidity premium (LP) on Zoom's bonds? *

a) 1.31%

b) 1.46%

c) 1.62%

d) 2.00%

e) None of the above

6. If 10-year T-bonds have a yield of 6.2%, 10-year corporate bonds yield 5.8%, the maturity risk premium on all 10-year bonds is 3.1%, and corporate bonds have a 0.4% liquidity premium versus a zero liquidity premium for T-bonds, what is the default risk premium on the corporate bond? *

a) 1.90%

b) 2.09%

c) 2.30%

d) 2.53%

e) None of the above

. With continuous compounding at 8 percent for 20 years, what is the approximate future value of a $20,000 initial investment? *

a) $52,000

b) $93,219

c) $99,061

d) $915,240

e) None of the above