Question 1: What would you expect to happen to the spread between yields on commercial paper and Treasury bills if the economy were to enter a steep recession?
Question 2: What are the key differences between common stock, preferred stock and corporate bonds?
Question 3: Why are high-tax-bracket investors more inclined to invest in municipal bonds than low-bracket investors?
Question 4: Suppose investors can earn a return of 2% per 6 months on a Treasury note with 6 months remaining until maturity. What price would you expect a 6-month maturity Treasury bill to sell for?
Question 5: Find the after-tax return to a corporation that buys a share of preferred stock at 50 USD, sells it at year- end at 50USD, and receives 5 USD year-end dividend. The firm in is the 30% tax bracket.
Question 6: You have 10000 USD to invest for the next year and are considering three alternatives:
a) A money market fund with an average maturity of 30 days offering a current yield of 6% per year b) A 1-year savings deposit at a bank offering an interest rate of 7.5% c) A 20-year US Treasury bond offering a yield to maturity of 9% per year. What role does your forecast of future interest rates play in your decisions?
Question 7: You are considering the choice between investing 75000 USD in a conventional 1-year bank CS offering an interest rate of 5% and a 1-year 'in?ation~plus' CS offering 1.5% per year plus the rate of in?ation. a) Which is the safer investment? b) Which offers the higher expected return? c) If you expect the rate of in?ation to be 3% over the next year, which is the better investment? Why? d) If we observe a risk-free nominal interest rate of 5% per year and a risk-free real rate of 1.5% on in?ation- indexed bonds, can we infer that the market's expected rate of in?ation is 3.5% per year?