1. Pretend that you have a "crystal ball" that is capable of giving you the following information about the next five years: Stock A's arithmetic average annual rate of return over the next five years with be 11.80%, with a standard deviation of 24.23%. Stock B's arithmetic average annual rate of return over the next five years will be 11.80%, with a standards deviation of 16.34%. Which of the following statements is true, assuming that your "crystal ball" is accurate?
A. If you invest $100,000 in stock A right now you will have more money at the end of 5 years than you will have if you invest $100,000 in stock B.
B. If you invest $100,000 in stock B right now you will have more money at the end of 5 years than you will have if you invest $100,000 in stocks A.
C. It not possible to determine which stock will result in you having more money at the end of 5 years using the information given in the problem.
D. If you invest $100,000 in tock A right now you will have the same amount of money at the end of 5 years than you will have if you invest $100,000 in stock B.
2. Hamilton Corporation bonds will mature in 15 years. The bonds have a face value of $1,000 and an 8% coupon rate, paid semi annually. The price of the bonds is $1,050. The bonds are callable in 5 years at a call price of $1,050. What is the yield to maturity of the Hamilton Bonds?
a. 8.90%
b. 7.44%
c. 8.41%
d. 6.92%