Which of the following events would NOT lead to an increase in interest rates? 

You observe the following yield curve for Treasury securities: Maturity             Yield 1 Year                3.50% 2 Years              4.60% 3 Years              5.40% 4 Years              5.50% 5 Years              6.10% Assume that the pure expectations hypothesis holds.  What does the market expect will be  the yield on 4-year securities, 1 year from today?

T. Martell Inc.’s stock has a 39% chance of producing a 5% return, a  19% chance of producing a 6% return, and a 42% chance of producing a  -5% return. What is Martell’s expected return? 

Suppose you hold a diversified portfolio consisting of a $12,999 invested equally  in each of 5 different common stocks.  The portfolio’s beta is 0.88.  Now  suppose you decided to sell one of your stocks that has a beta of 1.4 and to  use the proceeds to buy a replacement stock with a beta of 0.7.  What would  the portfolio’s new beta be?

The real risk-free rate of interest is 2 percent.  Inflation is expected to be 3 percent this  coming year, jump to 5 percent next year, and increase to 6 percent the year after (Year 3).   According to the expectations theory, what should be the interest rate on 2-year, risk-free  securities today?

Suppose the real risk-free rate is 3.8%, the average future inflation rate is  2.3%, a maturity premium of 0.05% per year to maturity applies, i.e., MRP =  0.05%(t), where t is the years to maturity.  Suppose also that a liquidity premium  of 1% and a default risk premium of 0.5% applies to A-rated corporate bonds.   How much higher would the rate of return be on a 7-year A-rated corporate  bond than on a 5-year Treasury bond.  Here we assume that the pure  expectations theory is NOT valid.   

Suppose the real risk-free rate is 2.3%,  the average future inflation rate is  2%, and a maturity premium of 0.1% per year to maturity applies, i.e., MRP =  0.1%(t), where t is the years to maturity.  What rate of return would you  expect on a 4-year Treasury security, assuming the pure expectations theory is NOT valid?

According to the Capital Asset Pricing Model (CAPM), beta is a measure of __________.

Suppose the real risk-free rate is 4.8%,  the average future inflation rate is  2.4%, and a maturity premium of 0.1% per year to maturity applies, i.e., MRP =  0.1%(t), where t is the years to maturity.  What rate of return would you  expect on a 4-year Treasury security, assuming the pure expectations theory is NOT valid?

XYZ Corp.’s union is striking. In addition XYZ Corp. is currently being sued for product infringement by several other companies. This is an example of ______________.