Suppose the real risk-free rate is 4.4%,  the average future inflation rate is  3.8%, and a maturity premium of 0.1% per year to maturity applies, i.e., MRP =  0.1%(t), where t is the years to maturity.  What rate of return would you  expect on a 4-year Treasury security, assuming the pure expectations theory is NOT valid?

Keys Corporation’s 5-year bonds yield 6%, and 5-year T-bonds yield 4%. The real risk-free rate is r* =  2.2%, the inflation premium  for 5 years bonds is  IP = 1.4%, the default risk premium for Keys’ bonds is DRP = 0.44% versus  zero for T-bonds, and the maturity risk premium for all bonds is found with  the formula  MRP =  (t – 1)*0.1%, where t = number of years to maturity.  What  is the liquidity premium (LP) on Keys’ bonds?

Given the following data, find the expected rate of inflation during the next year. ·         r* = real risk-free rate = 2.00%. ·         Maturity risk premium on 10-year T-bonds = 2%.  It is zero on 1-year bonds, and a linear relationship exists. ·         Default risk premium on 10-year, A-rated bonds = 1.5%. ·         Liquidity premium = 0%. ·         Going interest rate on 1-year T-bonds = 5.00%.

Suppose the real risk-free rate is 2.7%, the average future inflation rate is  1.1%, a maturity premium of 0.08% per year to maturity applies, i.e., MRP =  0.08%(t), where t is the years to maturity.  Suppose also that a liquidity premium  of 0.9% and a default risk premium of 0.8% applies to A-rated corporate bonds.   How much higher would the rate of return be on a 10-year A-rated corporate  bond than on a 5-year Treasury bond.  Here we assume that the pure  expectations theory is NOT valid.   

Parr Paper’s stock has a beta of 1.06, and its required return is 7%.  Clover Dairy’s stock has a beta of 0.98.  If the risk-free rate is 2.4%, what is the  required rate of return on Clover’s stock?  (Hint: First find the market risk premium.)

Suppose the real risk-free rate is 3.2%,  the average future inflation rate is  1.9%, and a maturity premium of 0.05% per year to maturity applies, i.e., MRP =  0.05%(t), where t is the years to maturity.  What rate of return would you  expect on a 5-year Treasury security, assuming the pure expectations theory is NOT valid?

Assume the risk-free rate is 2% and that the required return on the market is 5.8%.   If a stock has a required rate of return of 6.1%, what is its beta?

T. Martell Inc.’s stock has a 39% chance of producing a 5% return, a  19% chance of producing a 6% return, and a 42% chance of producing a  -5% return. What is Martell’s expected return? 

One-year Treasury securities yield 7.7%, 2-year Treasury securities yield 6.8%,  and 3-year Treasury securities yield 7%. Assume that the expectations theory  holds. What does the market expect will be the yield on 1-year Treasury  securities two years from now?

An unconscious patient is brought to the emergency department with a suspected heroin overdose. Which vital signs support the suspected diagnosis?