Calculating the? default-risk premium

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Reference no: EM131625291

1. (Calculating the? default-risk premium?)

At? present, 10-year Treasury bonds are yielding 3.6?% while a? 10-year corporate bond is yielding 6.8?%. If the? liquidity-risk premium on the corporate bond is 0.5?%, what is the corporate? bond's default-risk? premium? Note that a Treasuty security should have no? default-risk premium and? liquidity-risk premium.

The corporate? bond's default-risk premium is Answer: %. (Round to one decimal? place.)

2. Company A reports sales of? $100,000 and net income of? $15,000. Company B reports sales of? $100,000 and net income of? $10,000. Therefore

A. Company B is creating less value for its shareholders than Company A.

B. Company? A's cash flow is? $5,000 more than Company? B's cash flow.

C. Company? A's cash flow may be higher or lower than Company? B's cash flow even though? A's net income is higher.

D. Company? B's accounts receivable must be higher than Company? A's accounts receivable.

3. The three basic types of issues addressed by the study of finance are

A. capital? budgeting, investment? analysis, and cash management.

B. capital? budgeting, working capital? management, and investment analysis.

C. capital? budgeting, capital structure? decisions, and working capital management.

D. capital structure? decisions, working capital? management, and sustained profitability.

4. According to Principle? 3, how should investors decide where to invest their? money?

A. By determining the expected EPS.

B. By determining the lowest return.

C. By determining if the return is more than expected given the level of risk.

D. By determining the highest return.

Reference no: EM131625291

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