Question 1 Which of the following would lead to an increase in the Demand for Bonds? Firms expect a recession in the near future Investors are very willing to defer their spending Investors are older and wish to consume more today Investors expect interest rates to decrease in the near future Question 2 Which of the following risks will always decline over the life of a bond? O Maturity risk O Liquidity risk Default risk Reinvestment risk Question 3 Match the characteristics with their respective Term Structure models. States that a longer maturity implies a higher YTM [Choose ] Can explain a variety of yield curve patterns [Choose ] [Choose ] Any combination of bond maturities ultimately yield the same return over the same horizon Question 4 Consider a stock with the following characteristics: Dividend today = $6 Interest rate = 8% Perpetual dividend growth rate = 2% What is the price of the stock today? $96.00 $102.00 $108.00 $100.00 Question 5 Say we have a stock with the following characteristics: Current dividend = $18 Current growth rate = 6% Interest rate = 4% After 3 years, the growth rate will decrease to 2% and remain 2% forever What is the price of the stock today? $990.71 $1,148.01 $1,028.09 $1,009.03 Question 6 Consider a stock with the following characteristics: Dividend today (Year O) = $1 Interest rate = 5% Perpetual dividend growth rate = 1% What is the dividend yield in year 1