1. Which of the following statements is most correct?
All else equal, long-term bonds have more interest rate risk than do short-term bonds.
All else equal, high-coupon bonds have more reinvestment rate risk than do low-coupon bonds.
All else equal, short-term bonds have more reinvestment rate risk than do long-term bonds.
All of the answers are correct.
2. An asset has a 15% chance of a -10% return, a 25% chance of a 0% return, a 25% chance of a 5% returns, and a 35% chance of a 20% return. What is the expected rate of return of this asset?
3.75%
4.25%
5.30%
6.75%
7.95%