17.

Which of the following bonds has the longest duration?

a.

A 10-year maturity, 5% coupon bond.

b.

An 8-year maturity, 5% coupon bond.

c.

An 8-year maturity, 0% coupon bond.

d.

A 10-year maturity, 0% coupon bond.

18.

The market risk, beta, of a security is equal to

a.

the variance of the security's returns divided by the variance of the market's returns.

b.

the covariance between the security and market returns divided by the standard deviation of the market's returns.

c.

the covariance between the security's return and the market return divided by the variance of the market's returns.

d.

the variance of the security's returns divided by the covariance between the security and market returns.

19.

Which of the following factors comprise the CAPM? I. dividend yield; II. risk-free rate of return; III. the expected rate of return on the market; IV. risk premium for the firm.

a.

III and IV only

b.

I and III only

c.

II, III and IV only

d.

II and IV only

20.

Which statement is not true regarding the Capital Market Line (CML)?

a.

The CML is also called the security market line.

b.

The CML is the best attainable capital allocation line.

c.

The CML is the line from the risk-free rate through the market portfolio.

d.

The CML always has a positive slope.