Assume that the real risk-free rate, r*, is 2 percent, and that inflation

1- Assume that the real risk-free rate, r*, is 2 percent, and that inflation is expected to be 7 percent in Year 1, 6 percent in Year 2, 5 percent in year three, and 4 percent thereafter. Assume also that all Treasury bonds are highly liquid and free of default risk. If 3-year and 6-year Treasury bonds both yield 9 percent, what is the difference in the maturity risk premiums (MRPs) on the two bonds, i.e., what is MRP year6 – MRP year3?a. 9 %b. 2.5 %c. 1 %d. 2 %2- If the current yield curve is upward sloping, which of the following statements is most correct? a.The economy is at the peak of a business cycle. b.Inflation is expected to subside in the future.c.The maturity risk premium is zero.d.None of the above statements are correct. 3- Which of the following statements is most correct?a. If annual compounding is used, the effective annual rate equals the nominal rate. b. if annual compounding is used, the effective annual rate equals the periodic rate.c. If a loan has a 12 percent nominal rate with semiannual compounding, its effective annual rate is equal to 11.66 percent.d.Answers a and b are correct.4- Investment banking firms: a. are secondary market participants.b. are primary market participants.c. a and b are true.d. a and c are true.5- Which of the following statements is false?a. When a corporation’s shares are owned by a few individuals who are associated with or are the firm’s management, we say that the firm is “closely held.”b. Going public establishes a true market value for the firm and ensures that a liquid market will always exist for the firm’s shares.c. When stock in a closely held corporation is offered to the public for the first time the transaction is called “going public” and the market for such stock is called the new issue market.d. It is possible for a firm to go public, and yet not raise any additional new capital.