You are considering an investment in a AAA-rated U.S. corporate bond but you are not sure what
rate of interest it should pay.
Assume that the real risk-free rate of interest is 1.0%; inflation is
expected to be 1.5%; the maturity risk premium is 2.5%; and, the default risk premium for AAA
rated corporate bonds is 3.5%. What rate of interest should the U.S. corporate bond pay?
A) 5.0% B) 8.5% C) 2.5% D) 6.0%
B
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What do insurers offer as an optional benefit to guard against inflation with disability policies?
A) A guaranteed insurability rider B) A cost-of-living (COLA) rider C) A future increase option (FIO) rider D) An AD&D rider
Which of the following does your author suggest is NOT a lesson learned from the the Great Recession of 2007 -2009?
A) Individuals and firms that took on too much debt suffered dramatically. B) Firms and individuals that relied too heavily on short-term debt to finance long-term assets suffered when financial liquidity dried up. C) The crisis started in and was mostly limited to the collapse of the U.S. housing market. D) All of the above.