1. Which one of the following bonds has the greatest interest rate risk?
A. 3-year; 4 percent coupon
B. 3-year; 6 percent coupon
C. 5-year; 6 percent coupon
D. 7-year; 6 percent coupon E. 7-year; 4 percent coupon
2. You are quoted an interest rate of 7% per year with monthly compounding on your car loan. Which of the following is a FALSE statement?
A. The effective annual interest rate (EAR) is greater than 7%.
B. The equivalent APR with daily compounding would be equal to 7%.
C. You have been quoted an Annual Percentage Rate.
D. The interest charged over one month is 7% divided by 12.
E. The equivalent annual rate with quarterly compounding would be greater than 7%.
3. In an efficient market:
a. firms that are not followed by many analysts tend to yield higher returns
b. stock prices do not rapidly adjust to new information
c. security prices are seldom far above or below their justified level
d. returns tend to be positive on the last trading day before a holiday
4. Sylvia has a two assets in her equally-weighted portfolio, asset A and asset B. Asset A has a standard deviation of 40% and asset B has a standard deviation of 20%. The correlation for asset A and asset B is 0.90. What is the standard deviation for her portfolio?
a. Equal to 30%
b. Not enough information to determine
c. Less that 30%
d. Greater than 30%