1) One-year Treasury securities yield 6.9%, while 2-year Treasury securities yield 7.2%. If the expectations theory is correct, (that is, the maturity risk premium is zero), what does the market anticipate will be the yield on 1-year Treasury securities one year from now?
A. 6% B. 6.7% C. 7.2% D. 7.5% E. 8%
2) If a 10-year Treasury bond has a yield of 8%, and a 10-year corporate bond that is rated AA has a yield of 10%, and the liquidity premium on the corporate bond is 1%, what is the default risk premium on the AA rated, 10-year corporate bond?
A. 1% B. 2% C. .5% D. 1.5% E. 2.5%