Discuss systematic risk factors that can be diversified away.

1. 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)? (Points : 2) 8.56% 9.01% 9.46% 9.93% Question 2.2. 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? (Points : 2) 1.17 1.23 1.29 1.35 Question 3.3. Consider some bonds with one annual coupon payment of 7.25%. The bonds have a par value of $1,000, a current price of $1,125, and they will mature in 13 years. What is the yield to maturity on these bonds? (Points : 2) 5.56% 5.85% 6.14% 6.45% Question 4.4. 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? (Points : 2) 9.41% 9.65% 9.90% 10.15% Question 5.5. If a firm raises capital by selling new bonds, it is called the “issuing firm,” and the coupon rate is generally set equal to the required rate on bonds of equal risk. (Points : 2) True False Question 6.6. Managers should under no conditions take actions that increase their firm’s risk relative to the market, regardless of how much those actions would increase the firm’s expected rate of return. (Points : 2) True False Question 7.7. Which of the following statements is CORRECT? (Points : 2) An investor can eliminate virtually all market risk if he or she holds a very large and well diversified portfolio of stocks. The higher the correlation between the stocks in a portfolio, the lower the risk inherent in the portfolio. It is impossible to have a situation where the market risk of a single stock is less than that of a portfolio that includes the stock. An investor can eliminate virtually all diversifiable risk if he or she holds a very large, well-diversified, portfolio of stocks. Question 8.8. Which of the following statements is CORRECT? (Points : 2) 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. Question 9.9. The standard deviation is a better measure of risk than the coefficient of variation if the expected returns of the securities being compared differ significantly. (Points : 2) True False Question 10.10. Inflation, recession, and high interest rates are economic events that are best characterized as being: (Points : 2) systematic risk factors that can be diversified away. company-specific risk factors that can be diversified away. among the factors that are responsible for market risk. risks that are beyond the control of investors and thus should not be considered by security analysts or portfolio managers. Time Remaining: 01:29:42 Save Answers Submit for Grading