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Assume that we are in a perfect capital market without any frictions (so no taxes, no bankruptcy costs, securities are correctly priced, etc.). Your analysis

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Assume that we are in a perfect capital market without any frictions (so no taxes, no bankruptcy costs, securities are correctly priced, etc.). Your analysis of a corporate bond issue has determined that the bonds have a yield-to-maturity of 7% and an expected return of 5%. The risk-free rate is also 5% at all maturities. It follows that the corporate bond must be risk-free. True False

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