1.20 % versus zero for T-bonds, and the maturity risk premium for all bonds is found with the formula MRP =( t – 1) x 0.1 %, where t = number of years to maturity. What is the liquidity premium( LP) on Niendorf’ s bonds?( Points: 10)
0.49 % 0.55 % 0.61 % 0.68 % 0.75 %
( 10)( TCO C) Assume that investors have recently become more risk averse, so the market risk premium has increased. Also, assume that the risk-free rate and expected inflation have not changed. Which of the following is most likely to occur?( Points: 10)
( a) The required rate of return for an average stock will increase by an amount equal to the increase in the market risk premium.
( b) The required rate of return will decline for stocks whose betas are less than 1.0.
( c) The required rate of return on the market, rM, will not change as a result of these changes.
( d) The required rate of return for each individual stock in the market will increase by an amount equal to the increase in the market risk premium.
( e) The required rate of return on a riskless bond will decline.