Problem 1:
|
Stocks
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Bonds
|
Commodities
|
|
Probability
|
Return
|
Probability
|
Return
|
Probability
|
Return
|
|
0.25
|
12%
|
0.6
|
10%
|
0.2
|
20%
|
|
|
10%
|
0.4
|
7.50%
|
0.25
|
12%
|
|
|
8%
|
|
|
0.25
|
6%
|
|
|
6%
|
|
|
0.25
|
4%
|
|
|
|
|
|
0.05
|
0%
|
Suppose you decided to invest and these were your choices.
(A) Which investments would you choose to maximize your expected return for stocks, bonds or commodities?
(B) If you are risk-averse and had to choose between the stock or the bond investments which would you choose and why
Problem 2: If a $5,000 coupon bond has a coupon rate of 13 percent, then the coupon payment every year is
A) $650.(B) $1,300.(C) $130.(D) $13.
Problem 3: With an interest rate of 6 percent, the present value of $100 next year is approximately
A) $106.(B) $100 (C) $94.(D) $92.
Problem 4: If you expect the inflation rate to be 4 percent next year and a one year bond has a yield to maturity of 7 percent, then the real interest rate on this bond is
(A) -3 percent. (B) -2 percent. (C) 3 percent (D) 7 percent.
Problem 5: Which of the following $5,000 face-value securities has the highest yield to maturity?
A) A 6 percent coupon bond selling for $5,00
B) A 6 percent coupon bond selling for $5,500
C) A 10 percent coupon bond selling for $5,000
D) A 12 percent coupon bond selling for $4,500