1. If you predicted that a stock would be worth $40 in five years and that you wanted to get a nine percent average annual return, what price should you be willing to pay for it now? (Assume no fees or taxes.)
2. Suppose that your portfolio had a return of -30% in 2014, 60% in 2015 and -30% in 2016. What was the annualized holding period return of your portfolio over these three years?
3. Fully discuss the concept of risk in the bond market. Describe the different types of risk and how these risks can cause realized return to be different from expected return.