Question

question 27

This morning, Alicia bought a ten-year 8% coupon bond that pays interest annually. She paid $994 for a $1,000 bond. If the market interest rate on this type of bond declines to 6.5% tonight, how much will Alicia receive for her first interest payment?

Select one:

a. $69.58

b. $40.00

c. $32.31

d. $80.00

e. $70.00

question 26

Your portfolio consists of two stocks. You have $2500 in stock A and $7500 in stock B. The returns for stock A have a standard deviation of 20% and the returns for stock B have a standard deviation of 10%. The correlation coefficient between A and B is 0.1. What is your portfolio standard deviation?

Select one:

a. 9.4%

b. 10.5%

c. 6.8%

d. 11.2%

e. 10.2%

Answer 1

The coupon rate =8% and Face Value = 1,000

Interest payments on the bond = coupon rate * Face Value = 8%*1,000 = 80. The change in the market interest rate does not impact the interest payments as both the coupon rate and the orignal face value of the bond are fixed. Interest payments are also independent of the amount of price paid for purchase.

Answer d:80

Question 26:

Using first formula: w1 = 0.25, w2 = 0.75 , 1=20%, 2=10% Correlation 1,2 = 0.1

Answer:a. 9.4%