QUESTION 2

Interest rates and security prices:

		Move in the same direction
		There is little relationship between security prices and interest rates
		Move in the opposite direction
		They may move in the same direction or opposite directions

1 points

QUESTION 3

If a security is expected to be hard to find a buyer or seller for, this is what is captured in ______ risk premium

		Inflation
		Liquidity
		Default
		Interest rate

1 points

QUESTION 4

What nominal rate would Apex Corporation need to pay on a three year bond if the pure rate is 1.75%, maturity risk premium is 3%, default risk premium is 2.5%, the expected rate of inflation is 2%, 4% and 9% during each of the next three years, and liquidity risk premium is 1.0?

	a.	10.25%
	b.	13.25%
	c.	12.25%
	d.	17.25%

1 points

QUESTION 5

Datron can currently issue 1 and 2 year notes at nominal rates of 8 and 10.5 percent. The pure rate is 2.5%, and interest rate risk is 0. Default risk is 1.5% and liquidity risk is 1.0%. What is the implied rate of inflation for year 1 and year 2?

	a.	3% and 4.75%, respectively
	b.	5.5% and 5.5%, respectively
	c.	3% and 8%, respectively
	d.	3% and 5.5%, respectively