Question 2

What is a typical maturity for corporate stocks?

2 to 40 years

no maturity

2 to 30 years

5 to 30 years

Question 3

What is a typical maturity for Treasury notes/bonds?

no maturity

2 to 40 years

2 to 30 years

5 to 30 years

Question 4

What is a typical maturity for municipal bonds?

2 to 40 years

2 to 30 years

5 to 30 years

no maturity

Question 7

A 30-year U.S. Treasury bond has a 4.0 percent interest rate. In contrast, a 10-year Treasury note has an interest rate of 2.5 percent. A maturity risk premium is estimated to be 0.2 percentage points for the longer maturity bond. Investors expect inflation to average 1.5 percentage points over the next 10 years. Estimate the expected real rate of return on the 10-year U.S. Treasury note.

2.5%

1.0%

3.5%

5.5%

Question 8

Find the default risk premium for a debt security given the following information: inflation premium = 2.5 percent, maturity risk premium = 2.5 percent, real rate = 3 percent, liquidity premium = 1.5 percent, and market interest rate = 14 percent.

1.5%

4.0%

4.5%

2.0%

Question 9

The default risk premiums on _______ corporate bonds are generally better indicators of investor pessimism or optimism about economic expectations than are those on ______ bonds.

Aaa, Baa

Baa, Aaa

Baa, Caa

Caa, Baa