1. If two firms generate the same return on assets,
A. their asset base will be quite similar.
B. None of these answers is correct.
C. the firm with the higher liabilities will always have the higher ROE.
D. the shareholders of both firms are realizing similar returns on their investment.
2. If 10-year T-bonds have a yield of 6.2%, 10-year corporate bonds yield 11.4%, the maturity risk premium on all 10-year bonds is 1.3%, and corporate bonds have a 0.4% liquidity premium versus a zero liquidity premium for T-bonds, what is the default risk premium on the corporate bond?
4.58%
4.91%
5.02%
4.80%
4.69%