1. You buy a stock for $100. In four years, it is worth $175 and you sell it. Assuming no dividends, taxes or commissions, what was your annualized return? $18.75 annually Assume you demand an 8% return on investment (or internal rate of return). What would you pay for a 2. security that offers you $50 per year for three years, plus another $100 at the end of year 3? 3. Consider two investment options: A U.S. 10-year treasury bond promises to pay you $50 per year for 10 years and then return $1000 principal amount A North Korean 10-year bond with the same cash flow structure; that is, 50 per year and 1000 at maturity Which bond would you expect to be more expensive? Explain your answer in terms of risk and return and by referring to the components of the YTM of a bond. Consider these two scenarios: 4. Say Johnson & Johnson has an expected return of 6% with a standard deviation of 5% Puma Biotech, with an unproven cancer drug, has an expected return of 10% with a standard deviation of 15% . Which stock is riskier? Assume each stock trades at $100 per share. For each stock, what range of stock prices captures 95.4% of expected returns? What is the most likely return for each stock? Rank the following investments based what you would guess are the standard deviation of returns, from most to least risky: 5. Tesla stock 3 month treasure bill Private investment in company promising a time machine Building a toll road between Denver and Grand Junction Leasing a car to drive for Uber o o o o o