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 .