Following Is Information About Three Bonds:
?
Although None of the Bonds Has a Liquidity Premium

question 39

Multiple Choice

Following is information about three bonds:
? $\begin{array} { l l c } { \text { Issuer } } & \text { Yield } & \text { Time to Maturity } \\\hline\text { Treasury } & 2.0 \% & 6 \text { months } \\\text { Company A } & 5.0 & 5 \text { years } \\\text { Company B } & 5.3 & 8 \text { years }\end{array}$
?
Although none of the bonds has a liquidity premium, any bond with a maturity equal to one year or greater has a maturity risk premium (MRP) . Except for their terms to maturity, the characteristics of the Company A and Company B bonds are the same (including their default risk) . The average inflation rate is expected to remain constant during the next 10 years. What is the default risk premium (DRP) associated with the bonds issued by Company A and Company B?

Recognize different business formations and their implications on liability and tax.

Understand the taxation and liability structure for different types of business entities.

Recognize the process and requirements for a business operating in multiple states.

Comprehend the components and legal implications of franchising.

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Definitions:

Cash Inflows

The total amount of money being transferred into a business, often from operations, investments, or financing.

Net Working Capital

The difference between a company’s current assets and current liabilities, indicating its short-term financial health and ability to cover short-term liabilities.

JIT Inventory

JIT inventory, or Just-In-Time inventory, is a management strategy that aligns raw-material orders from suppliers directly with production schedules to reduce stock levels.

Just in Time

The Just in Time (JIT) methodology is an inventory management strategy that aims to reduce waste and increase efficiency by receiving goods only as they are needed in the production process.