Part 2, Short Answer, 14 points, 1 points each Answer A\'or \"B\' or A-B: for ea
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Part 2, Short Answer, 14 points, 1 points each Answer A'or "B' or A-B: for each of the following. Put your answer in the column to the right. 17. Stock A has a holding period return of 10%. Stock B has a holding period return of 8%, if both stocks have a fair return of 9%, which stock should you short? 18. Stock A has high risk. Stock B has low risk. All else equal, which one has the higher required return? Both A and B took out 30-year mortgages. else equal, who borrowed more money? A had a payment of $2000. Bhad a payment of $2200. All and B took out 30-year mortgages. A paid his off in 28 years. B paid hers off in 25 years. All else equal, who paid more interest? Investment A has a quarterly interest rate of 3%. Investment B has a monthly interest rate of 1%, which investment has the higher EAR? Investment A and B both pay interest of 5% per year. Investment A interest compounds quarterly Investment B interest compounds semi-annually. You plan to invest for 5 years, which is the better investment? Investment A has a future value of $600. Investment B has a future value of $500. Both have the same 21. 22. present value. All else equal, which one has the higher interest rate? Bond A is a B88 bond, Bond B is a AAA bond. All else equal, which one will have a higher yield to maturity? Bond A is a par bond an rate? 24. d Bond B is a discount bond. All else equal, which bond has the higher coupon 26. Bond A is a municipal bond and Bond B is a corporate bond? Which bond should have the higher yield to Bond A makes semi-annual interest payments of $30. Bond B makes an annual payment of $50. Both bonds have a yield of 5%, which bond has a higher price? Bond A is not callable, Bond B is callable. All else equal, which one is more risky? Bond A is a municipal bond and Bond B is a corporate bond. If you pay a very low tax rate, which bond is 2 28. 29 most likely to be the better choice? ll alre qual which one will have the
Explanation / Answer
17.
in short trading trategy, if stock return is less than fair market return then investor earns profit and if stock return is higher than market return then investor incur loss. Similarly in long trading strategy, if stock return is higher than market return then investor earn profit and if stock return is lower than market return then investor incur loss.
So, you should short stock B because its return is lower than market return.
18.
As risk of investment increase, its required rate of return also increase. since stock A has high risk and stock B has low risk, so stock A have more required rate of return and stock B have less required rate of return.
19.
Monthly payment for B is more than monthly payment of A. if other things remains constant, B have borrowed more money than A.
20.
A took 28 year and B took 25 year. So A has paid more interest than B.
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