Reference no: EM132562786

Problem 1: The tighter the probability distribution of its expected future returns, the greater the risk of a given investment as measured by its standard deviation. The larger the standard deviation, the higher the probability that returns will be far below the expected return.

True.

False.

Problem 2: Any change in the risk aversion level of investors is likely to affect the required rate of return on a stock, so the change in in the risk aversion level will likely have an impact on the stock's price.

True

False

Problem 3: How long will it take to double our money if we assume annual return i = 6.0%, compounded MONTHLY?

Option 1: 8.8 years

Option 2: 11.9 years

Option 3: 11.6 years

Option 4: 14.3 years

Problem 4: If a stock's expected rate of return is 12% and the required rate of return is 13%, the stock is believed to be ______

Option 1: Undervalued.

Option 2: Overvalued.

Option 3: Fairly-valued

Problem 5: A 10-year corporate bond has an annual coupon payment of 5.3%. The bond is currently selling at par ($1,000). Which of the following statement is not correct?

Option 1: The bond's yield to maturity is 5.3%.

Option 2: The bond's current yield is 5.3%.

Option 3: If the bond's yield to maturity remains constant, the bond's price will remain at par.

Option 4: The bond's capital gain yield is 5.3%.