1. If the economy booms, Meyer&Co. stock will have a return of 18.4 percent. If the economy goes into a recession, the stock will have a loss of 7.5 percent. The probability of a boom is 72 percent while the probability of a recession is 28 percent. What is the standard deviation of the returns on the stock?
11.63%
14.75%
13.52%
9.69%
15.89%
15.89%
2. BLB Ltd has just issued a “coupon growth bond” with the following terms. Each bond’s face (or maturity) value is $1,000 and the bonds will mature in 5 years’ time. Coupons will be paid on an annual basis at the end of each year. The first year’s coupon will be $100 at the end of year 1, which will then grow at an annual rate of 10% until the bonds mature. If the bond’s yield to maturity is 8% per annum, its price today should be closest to:
a. $972.
b. $1,080.
c. $1,161.
d. $1,275.