1. If you invest in a coupon-paying bond with 100 face value and 10% semi-annual coupon rate, what would be a typical value for the short-term volatility of your cashflow stream? Approximately what percentage of the risk of the bond would this generally represent?

2. Briefly explain the distinction between the CAPM (Capital Asset Pricing Model) and the one- factor APT (Arbitrage Pricing Theory Model). Which would you be more likely to apply in practice? Could a Multi-factor APT hold at the same time as the CAPM? Explain?