1. Suppose 10-year T-bonds have a yield of 6.00% and 10-year corporate bonds yield 7.50%. Also, corporate bonds have a 0.50% liquidity premium versus a zero liquidity premium for T-bonds, and the maturity risk premium on both Treasury and corporate 10-year bonds is 1.50%. What is the default risk premium on corporate bonds?
1.25%
0.75%
1.75%
1.00%
1.50%
2. McDonalds’s stock has a beta of 1.15. The risk-free rate of return is 4% and the market rate of return is 8%. What is the required rate of return on McDonalds’s stock?
8.6%
13.8%
12.6%
12.0%
None of the above