1. Ms Parker found two opportunities of investment A (rate of return 4%, standard deviation 4%) and investment B (rate of return 6%, standard deviation 3%). Which one is better for her? (hints: calculate each CV and then compare each other)

a. A

b. B

c. none

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2. Johnson Corporation has 5-year bonds. Inflation premium (IP) on a 5 year bond is 1.00%. The real risk-free rate is r* = 2.80%, the default risk premium for Johnson's bonds is DRP = 0.85% versus zero for T-bonds, the liquidity premium on Johnson's bonds is LP = 1.25%, and the maturity risk premium for all bonds is found with the formula MRP = (t 1) x 0.1%, where t = number of years to maturity. What is the yield on Johnson Corporations 5-year bonds?

a. 1.40%

b. 6.85%

c. 1.71%

d. 6.30%

e. 2.06%