1. Rocky believes that a bond he is purchasing today has an effective annual discount rate of 15%. The bond has 8 remaining coupons of $700 each. The first coupon will be paid in 1 month, and each subsequent payment will be one year after. On the date of the last coupon payment the bond will pay out a face value of $10,000. What is the bond’s present value if Rocky’s assumption of the discount rate is correct?
a. 5,639
b. 7,286
c. 6,410
d. 6,479
e. 7,277
2. Which of the following will reduce overall level of risk in portfolio, and why?
a) Higher correlation coefficient
b) Lower beta
c) Lower standard deviation
d) Lower correlation coefficient