Reference no: EM132070480

1. Suppose 10-year T-bonds have a yield of 5.30%, and 10-year corporate bonds yield 6.755. Also, corporate bonds have a 0.25% liquidity premium vs. a zero liquidity premium for T-bonds, and the maturity risk premium on both Treasury and corporate 10-year bonds is 1.15%. What is the default risk premium on corporate bonds?

a. 1.08%

b. 1.20%

c. 1.32%

d. 1.45%

e. 1.60%

2. Which of the following statements is correct

a. other things held constant, the more debt a firm uses, the higher its operating margin will be

b. debt management ratios show the exent to which a fim's managers are attempting to magnify returns on owners capital through the use of financial leverage

c. other things held constnat, the higher a firm's total debt to total capital ratio, the higher its time-interest-earned (TIE) ratio will be

d. debt managemetn ratios show the extent to which a firm's managers are attempting to reduce risk throught the use of financial leverage. the higher the total-debt-to-total-capital ratio, the lower the risk.