Reference no: EM132582033

Question 1: Based on economists' forecasts and analysis, 1-year Treasury bill rates and liquidity premiums for the next four years are expected to be as follows:

R1 =0.85% E(2r1)=2.00% L2 =0.08% E(3r1)=2.10% L3 =0.10% E(4r1)=2.40% L4 =0.12%

Using the liquidity premium theory, determine the current (long-term) rates

Year1

Year2

Year3

Year4

Question 2: Determine the interest payment for the following three bonds. (Assume a $1,000 par value.)

4.60 percent coupon corporate bond (paid semiannually)

5.25 percent coupon Treasury note

Corporate zero-coupon bond maturing in ten years

Question 3: Dakota Corporation 15-year bonds have an equilibrium rate of return of 10 percent. For all securities, the inflation risk premium is 1.75 percent and the real risk-free rate is 3.50 percent. The security's liquidity risk premium is 0.85 percent and maturity risk premium is 1.45 percent. The security has no special covenants. Calculate the bond's default risk premium

Question 4: A preferred stock from Hecla Mining Co. (HLPRB) pays $4.60 in annual dividends. If the required return on the preferred stock is 7.60 percent, what is the value of the stock?

Question 5: Consider the following three bond quotes: a Treasury bond quoted at 103:21, a corporate bond quoted at 96.90, and a municipal bond quoted at 101.30. If the Treasury and corporate bonds have a par value of $1,000 and the municipal bond has a par value of $5,000, what is the price of these three bonds in dollars?