1. (9 marks) The following table shows the yield to maturity (YTM) of various types of bonds on March 15, 2022. 2-year 5

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1 9 Marks The Following Table Shows The Yield To Maturity Ytm Of Various Types Of Bonds On March 15 2022 2 Year 5 1 (78.88 KiB) Viewed 32 times

1. (9 marks) The following table shows the yield to maturity (YTM) of various types of bonds on March 15, 2022. 2-year 5-year 10-year U.S. Treasury Corp. AAA Corp. AA 1.852% 2.117% 2.216% 2.107% 2.535% 2.704% 2.146% 2.942% 3.159% The YTM of a 3-month T-bill is 0.46%. a. What is the expected yield of a three-year Treasury two years from the date above according to the pure expectations theory? (3 marks) b. What is the risk premium of a 5-year T-note? (3 marks) c. What explains the 0.428% difference in YTM between a 5-year U.S. Treasury and a 5-year AAA corporate bond? (3 marks) 2. (11 marks) Yield Curves a. What is a yield curve and why are they typically upward sloping? (6 marks) c. Why is the flattening of the treasury yield curve considered an indicator of slower economy growth ahead? Explain. (5 marks) 3. (12 points) Non-constant Growth Stock The last dividend paid by Company A was $2.4. Its growth rate is expected to be 2.5 percent for three years, after which dividends are expected to grow at a rate of 8 percent forever. The company's stockholders require a rate of return on equity of 12 percent. 1