Problem 1:
|
Stocks
|
Bonds
|
Commodities
|
|
Probability
|
Return
|
Probability
|
Return
|
Probability
|
Return
|
|
0.25
|
12%
|
0.6
|
10%
|
0.2
|
20%
|
|
|
10%
|
0.4
|
7.50%
|
0.25
|
12%
|
|
|
8%
|
|
|
0.25
|
6%
|
|
|
6%
|
|
|
0.25
|
4%
|
|
|
|
|
|
0.05
|
0%
|
Suppose you decided to invest and these were your choices.
(A) Which investments would you choose to maximize your expected return for stocks, bonds orcommodities?
(B) If you are risk-averse and had to choose between the stock or the bond investments which would you choose and why
Problem 2:
If a $5,000 coupon bond has a coupon rate of 13 percent, then the coupon payment every year is
A) $650.(B) $1,300.(C) $130.(D) $13.
Problem 3:
With an interest rate of 6 percent, the present value of $100 next year is approximately
A) $106.(B) $100 (C) $94.(D) $92.
Problem 4: If you expect the inflation rate to be 4 percent next year and a one year bond has a yield to maturity of 7 percent, then the real interest rate on this bond is
(A) -3 percent. (B) -2 percent. (C) 3 percent, (D) 7 percent.
Problem 5: Which of the following $5,000 face-value securities has the highest yield to maturity?
A) A 6 percent coupon bond selling for $5,00
B) A 6 percent coupon bond selling for $5,500
C) A 10 percent coupon bond selling for $5,000
D) A 12 percent coupon bond selling for $4,500