1. Tom O'Brien has a 2-stock portfolio with a total value of $100,000. $37,500 is invested in Stock A with a beta of 0.75 and the remainder is invested in Stock B with a beta of 1.42. What is his portfolio's beta?

• 1.17
• 1.23
• 1.29
• 1.35

2. Maxwell Inc.'s stock has a 50% chance of producing a 25% return, a 30% chance of producing a 10% return, and a 20% chance of producing a -28% return. What is the firm's expected rate of return?

• 9.41%
• 9.65%
• 9.90%
• 10.15%

3. Moerdyk Company's stock has a beta of 1.40, the risk-free rate is 4.25%, and the market risk premium is 5.50%. What is the firm's required rate of return?

• 11.36%
• 11.65%
• 11.95%
• 12.25%

4. Quigley Inc.'s bonds currently sell for $1,080 and have a par value of $1,000. They pay a $100 annual coupon and have a 15-year maturity, but they can be called in 5 years at $1,125. What is their yield to maturity (YTM)?

• 8.56%
• 9.01%
• 9.46%
• 9.93%

5. A 10-year bond with a 9% annual coupon has a yield to maturity of 8%. Which of the following statements is CORRECT?

• If the yield to maturity remains constant, the bond's price one year from now will be higher than its current price.
• The bond is selling below its par value.
• The bond is selling at a discount.
• If the yield to maturity remains constant, the bond's price one year from now will be lower than its current price.

6. Risk-averse investors require higher rates of return on investments whose returns are highly uncertain, and most investors are risk averse.

• True
• False

7. Sinking funds are devices used to force companies to retire bonds on a scheduled basis prior to their maturity. Many bond indentures allow the company to acquire bonds for a sinking fund by either purchasing bonds in the market or selecting the bonds to be acquired by a lottery administered by the trustee through a call at face value.

• True
• False

8. Which of the following statements is CORRECT?

• All else equal, senior debt generally has a lower yield to maturity than subordinated debt.
• An indenture is a bond that is less risky than a mortgage bond.
• The expected return on a corporate bond will generally exceed the bond's yield to maturity.
• If a bond's coupon rate exceeds its yield to maturity, then its expected return to investors exceeds the yield to maturity.

9. Which is the best measure of risk for a single asset held in isolation, and which is the best measure for an asset held in a diversified portfolio?

• Variance; correlation coefficient.
• Standard deviation; correlation coefficient.
• Beta; variance.
• Coefficient of variation; beta.

10. Which of the following events would make it more likely that a company would choose to call its outstanding callable bonds?

• The company's bonds are downgraded.
• Market interest rates rise sharply.
• Market interest rates decline sharply.
• The company's financial situation deteriorates significantly.