1. If investors on average become less risk averse and prefer stocks to all bonds, then all else equal, one would expect
A) Interest rates at every maturity to fall
B) Interest rates at every maturity to rise
C) The term structure to become flatter (less slope)
D) The term structure to become steeper (greater slope)
2. The Woods Co. and the Mickelson Co. have both announced IPOs at $73 per share. One of these is undervalued by $11, and the other is overvalued by $3, but you have no way of knowing which is which. You plan to buy 900 shares of each issue. If an issue is underpriced, it will be rationed, and only half your order will be filled.
If you could get 900 shares in Woods and 900 shares in Mickelson, what would your profit be?
What profit do you actually expect?