5) If there is a 20% chance of earning 5%, a 50% chance of earning 7%, and a 30% chance of earning 10% then what is the expected return?

7.5%

5.0%

14.6%

22.0%

4) Suppose the real risk-free rate of interest is 3%. Inflation is expected to be 1% for 2 years and then 3% thereafter. The maturity risk premium is 0.1%(t), where t is the number of years until maturity. The default risk premium is 3%. The liquidity premium is 0.5%. What is the nominal interest rate on a 4 year bond?

9.1%

6.7%

8.9%

16.5%

1) What is the yield to call for a $1,000 par, 20-year, 7% coupon bond with annual payments, callable in 2 years at a call price of $1,100 that sells for $1,200.

0.8%

3.4%

2.8%

1.7%

2) What is the price for a $1,000 par, 4-year, 8% coupon bond with semiannual payments and a 12% yield to maturity?

$1,256.88

$1,148.77

$875.80

$936.60

3) Which of the following is true?

When market interest rates increase, bond prices decrease.

If the yield to maturity is equal to the coupon rate then the bond will sell at a premium

Short term bonds are more sensitive to changes in interest rates than long term bonds.

If the yield to maturity is greater than the coupon rate then the bond will sell at a premium