1. On average, for the period 1926 through 2008:
a. The real rate of return on U.S. Treasury bills has been negative.
b. Small company stocks have underperformed large company stocks.
c. Long-term government bonds have produced higher returns than long-term corporate bonds.
d. The risk premium on long-term corporate bonds has exceeded the risk premium on long-term government bonds.
e. The risk premium on large company stocks has exceeded the risk premium on small company stocks.
2. Capital market history shows us that the average return relationship from lowest to highest between securities is:
a. Inflation, corporate bonds, Treasuries, small company stocks, large company stocks.
b. Treasury bills, inflation, small company stocks, large company stocks.
c. Treasury bills, corporate bonds, government bonds, large common stocks, small company stocks.
d. Treasury bills, government bonds, corporate bonds, large common stocks, small company stocks.
e. There is no ordering.
3. Find the current fair values of a 8.2 month European call and a 8.2 month European put option, using a current stock price of 23.6, strike price of 23.6, volatility of 0.32, interest rate of 6.20 percent per year, continuously, compounded. Obtain the current fair values of the following:
a) European call by simulation.
b) European put by simulation.
c) European call by the Black-Scholes model.
d) European put by the Black-Scholes model.