1.For a portfolio of 40 randomly selected stocks, which of the following is most
ID: 2692931 • Letter: 1
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1.For a portfolio of 40 randomly selected stocks, which of the following is most likely to be true? The riskiness of the portfolio is greater than the riskiness of each of the stocks if each was held in isolation. The riskiness of the portfolio is the same as the riskiness of each of the stocks if each was held in isolation. The beta of the portfolio is less than the average of the betas of the individual stocks. The beta of the portfolio is equal to the average of the betas of the individual stocks. The beta of the portfolio is larger than the average of the betas of the individual stocks. 2.Which of the following bonds has the greatest interest rate price risk? A 10-year $100 annuity. A 10-year, $1,000 face value, zero coupon bond. A 10-year, $1,000 face value, 10% coupon bond with annual interest payments. All 10-year bonds have the same price risk since they have the same maturity. A 10-year, $1,000 face value, 10% coupon bond with semiannual interest payments. 3. A 10-year bond pays an annual coupon, its YTM is 8%, and it currently trades at a premium. Which of the following statements is CORRECT? (Points : 5) The bond's current yield is less than 8%. If the yield to maturity remains at 8%, then the bond's price will decline over the next year. The bond's coupon rate is less than 8%. If the yield to maturity increases, then the bond's price will increase. If the yield to maturity remains at 8%, then the bond's price will remain constant over the next year. 4.An investor is considering buying one of two 10-year, $1,000 face value bonds: Bond A has a 7% annual coupon, while Bond B has a 9% annual coupon. Both bonds have a yield to maturity of 8%, which is expected to remain constant for the next 10 years. Which of the following statements is CORRECT? (Points : 5) Bond B has a higher price than Bond A today, but one year from now the bonds will have the same price. One year from now, Bond A's price will be higher than it is today. Bond A's current yield is greater than 8%. Bond A has a higher price than Bond B today, but one year from now the bonds will have the same price. Both bonds have the same price today, and the price of each bond is expected to remain constant until the bonds mature.Explanation / Answer
The beta of the portfolio is less than the average of the betas of the individual stocks A 10-year, $1,000 face value, 10% coupon bond with semiannual interest payments. The bond's coupon rate is less than 8% Both bonds have a yield to maturity of 8%, which is expected to remain constant for the next 10 years Bond A has a higher price than Bond B today, but one year from now the bonds will have the same price
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