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Construct a portfolio of real-world stocks

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1. Assume that you have a short investment horizon (less than 1 year You arec considering two investments: a 1-year Treasury security and a 20-year Treasurys security Which of the two investments would you view as being riskier? Explain.

2. If interest rates rise after a bond issue, what will happen to the bond's price and YTM? Does The time to maturity affect the extent to which interest rate changes affect the bond's price?

3. Is it possible to construct a portfolio of real-world stocks that has a required return equal tothe risk-free rate? Explain.

4. Two investors are evaluating GE's stock for possible purchase. They agree on the expected value of D1 and on the expected future dividend growth rate. Further, they agree on theriskiness of the stock. However, one investor normally holds stocks for 2 years, while theother holds stocks for 10 years. On the basis of thet type of analysis done in this chapter, should they both be willing to pay the same price for GE's stock? Explain.

Reference no: EM132404659

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