Assignment
1. Under what conditions is an investor exposed to interest rate (or price) risk? Reinvestment (rollover) risk?
2. How will an increase in perceived credit risk on a risky bond affect its price? Its yield? How will it affect the price and yield of a riskless bond?
3. How does the spread between a Caa-rated bond over a Aaa-rated bond vary over the business cycle? Why? A Aaa-rated bond over a comparable maturity Treasury security?
4. Why do investors hold portfolios of securities instead of a single security? Would a portfolio manager ever consider acquiring a security that, by itself, is very risky? Why or why not? What would have to be true of that security?
5. What is an efficient financial market? A random walk? Does the evidence, on balance, favor market efficiency? Random walks?
The response should include a reference list. Double-space, using Times New Roman 12 pnt font, one-inch margins, and APA style of writing and citations.