11. Which of the following statements is true? a. As interest rates decline, the

Question

11. Which of the following statements is true? a. As interest rates decline, the prices of bonds rise; and as interest rates rise, the prices of bonds decline. b. All other things being equal, short-term bonds are riskier than long-term bonds. e. Long-term bonds have lower price volatility than short-term bonds. d. Interest rate risk decreases as maturity increases. Answer: 12, what is the expected return for a stock that has a beta of 1.5, if the risk-free rate is 6% and the market rate of return is 10%? a. 12.0% b. 16.5% c. 13.5% d. 6.0% Answer:

Explanation / Answer

11) a. Price of bond is the present value of cash flow which is discounted at interest rate.There is adverse relation between Price of Stock and interest rate. 12) a. 12.0% Expected return = Rf+Beta*(Rm-Rf) Where, = 0.06+1.5*(0.10-0.06) Rf =           0.06 = 12.0% Beta = 1.5 Rm =           0.10

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