1. We have discussed both Price Risk and Reinvestment Risk. You know that both of these risks are related to (a) term to maturity and (b) size of coupon. How would the Price Risk of a 4-year bond with a 5% coupon compare to the Price Risk of a 20-year bond with a 2% coupon?

Multiple Choice

• The 4-year bond with a 5% coupon has less price risk than a 20-year bond with a 2% coupon

• The 4-year bond with a 5% coupon has more price risk than a 20-year bond with a 2% coupon

• Both bonds have the same price risk

• Neither bond has any price risk

2. A company common stock paid a dividend of $5.00 yesterday. The dividend is expected to grow at 2% per year. If investors require a return of 15% to hold a companys common shares, what is a fair market price for a company common stock?

Multiple Choice

• $39.23

• $36.64

• $38.23

• $32.28