Question1: Over the past 75 years, we have observed that investments with the highest average Annual returns also tend to have the highest standard deviations of their yearly returns. This observation supports the notion that there is a positive correlation between risk and return. Which of the following lists correctly ranks investments from highest to lowest returns & risk [thus, the highest risk security should be shown first, the lowest risk securities shown last]?
[A] Small-company stocks, long-term corporate bonds, large-company stocks, long-term government bonds, U.S. Treasury bills
[B] Small-company stocks, large-company stocks, long-term corporate bonds, long-term government bonds, U.S. Treasury bills
[C] Large-company stocks, small-company stocks, long-term corporate bonds, U.S. Treasury bills, long-term government bonds
[D] United State Treasury bills, long-term government bonds, long-term corporate
Question2: Which of the following statements is NOT CORRECT?
[A] All else equal, bonds with larger coupons have greater interest rate (price) risk than do bonds with smaller coupons.
[B] If a bond is selling at a premium, its current yield will be greater than its yield to maturity.
[C] If a bond is selling at its par value, its current yield equals its yield to maturity.
[D] If a bond is selling at a discount to par, its current yield will be less than its yield to maturity.
[E] All else equal, bonds with longer maturities have more interest rate (price) risk than do bonds with shorter maturities.