1. You have invested only in the something, a mutual fund that invests mainly in stocks. At the moment, the company has an expected return of 14% and a volatility of 36%. Your broker suggests you to consider adding the Platinum Fund to your current portfolio. The Platinum Fund has an expected return of 8%, a volatility of 24%, and a correlation of 0.25 with the company. Risk-free interest rate is equal to 3%. The difference between the expected return and the required return on the Platinum Fund is closest to:

-0.005

0.134

0.032

0.21

2.

Which of the following statements is FALSE?

	A.	It is possible that there is no discount rate that will set the Net Present Value of an investment opportunity equal to zero.
	B.	It is possible that the internal rate of return (IRR) for an investment opportunity does not exist.
	C.	The IRR investment rule is based upon the notion that if the return on other alternatives is higher than the return on the considered investment opportunity, you should undertake this investment opportunity.
	D.	According to the payback rule, if the payback period of an investment project is shorter than a pre-specified length of time, then you should accept the project.

3.

Which of the following statements is FALSE?

		The S&P 500 is an equal-weighted portfolio of 500 of the largest U.S. stocks.
		The S&P 500 is the standard portfolio used to represent "the market" when using the CAPM in practice.
		Even though the S&P 500 includes only 500 of the more than 7,000 individual U.S. Stocks in existence, it represents more than 70% of the U.S. stock market in terms of market capitalization.
		A market index reports the value of a particular portfolio of securities.

4.

A Government has issued two bonds: Bond A will pay a coupon of 100 on 1 January next year, and which will then pay coupons on 1 January every year thereafter (forever), with the coupon increasing by 4% every year. Bond B will pay a fixed annual coupon each year (forever), with the coupon being paid on 1 January each year. Assume that the appropriate discount rate for both bonds is 7% in annualized terms. If it is now January 2, and both bonds have the same current price, what is the coupon of Bond B?

	A.	260
	B.	175
	C.	200
	D.	233