problem1. Suppose that all interest rates in the economy decline from 10 percent to 9 percent. Determine the largest percentage increase in price?

[A] A 10-year bond with a 10% coupon.

[B] A 10-year zero coupon bond.

[C] An 8-year bond with a 9% coupon.

[D] A 1-year bond with a 15% coupon.

[E] A 3-year bond with a 10% coupon.

problem2. Determine the greatest interest rate price risk?

[A] A 10-year, $1,000 face value, 10% coupon bond with semiannual interest payments.

[B] A 10-year $100 annuity.

[C] A 10-year, $1,000 face value, zero coupon bond.

[D] A 10-year, $1,000 face value, 10% coupon bond with annual interest payments.

[E] All 10-year bonds have the same price risk since they have the same maturity.

problem3. Find the correct statements?

[A] Risk refers to the chance that some unfavorable event will occur, and a probability distribution is completely described by a listing of the likelihood of unfavorable events.

[B] A stock with a beta of -1.0 has zero market risk if held in a 1-stock portfolio.

[C] The SML relates its required return to a firm's market risk. The slope and intercept of this line cannot be controlled by the financial manager.

[D] Portfolio diversification reduces the variability of returns on an individual stock.

[E] When company-specific risk has been diversified away, the inherent risk that remains is market risk, which is constant for all stocks in the market.