1. The returns on the common stock of New Image Products are quite cyclical. In a boom economy, the stock is expected to return 32 percent in comparison to 14 percent in a normal economy and a negative 28 percent in a recessionary period. The probability of a recession is 25 percent while the probability of a boom is 20 percent. What is the standard deviation of the returns on this stock?
a. 32.08 percent
b. 39.77 percent
c. 21.41 percent
d. 21.56 percent
e. 25.83 percent
2. The Cardinal Corporation has bonds outstanding with 20 years to maturity and a par value of $1000. The bonds pay semi-annual coupon payments at a coupon rate of 8%. The yield to maturity (YTM) on these bonds is 9%. What price should the bonds sell for?
a. $462.13
b. $907.99
c. $934.96
d. $1,067.95
e. $1,098.96