A)The degree of Investor Z risk aversion is measured by A. It is used to determine _______. *

a. His capital allocation line

b. His optimal risky portfolio

c. The rate of return on T-bills

d. His optimal mix of risk-free and risky assets.

e. None of the above

B)Mrs. Tatiana is willing to invest $75,000 in a risky portfolio. The cash flows derived from this portfolio after 2 years will be either $60,000 or $105,000 with probabilities of 40% and 60% respectively. Assume that the risk-free rate is 4%. What is the expected risk-premium of Mrs. Tatiana? *

a. 7.7%

b. 3.7%

c. 11.7%

d. 10.7%

e. None of the above

C)After 1 year, a risky portfolio would have a 40% chance of tripling your investment and a 60% chance of losing 75% of your money. What is your expected return on this investment? *

a. 165%

b. 35%

c. 65%

d. 16.5%

e. None of the above

D)The duration of ABC bond is 6 years. The current market interest rates are 7%. You are expecting a slight increase in interest rates by 0.25%. What is the percentage change of ABCs bond price? *

a. +2.51%

b. -2.51%

c. -1.4%

d. +1.4%

e. None of the above

E)The liabilities duration of XYZ fund is equal to 15 years. XYZ wants to immunize itself against the volatile interest rate. The CEO thinks that they should buy a 5-year zero coupon bond and perpetual bonds yielding 4%. However, the CFO affirms that they should buy a 4-year zero coupon bond and perpetual bonds yielding 5%. Which of the following statements is TRUE? *

a. According to the CEOs viewpoint, the weight of the zero-coupon bonds must be equal to 52.38% while according to the CFOs viewpoint the weight of the perpetuities must be equal to 47.62%

b. According to the CEOs viewpoint, the weight of the zero-coupon bonds must be equal to 64.71%, while that of the perpetuities must be equal to 35.29%

c. According to the CFOs viewpoint, the weight of the perpetuities must be equal to 64.71%, while according to the CEOs viewpoint their weight must be equal to 52.38%.

d. According to the CEOs viewpoint the weight of the perpetuities must be equal to 47.62%, while according to the CFOs viewpoint their weight must be equal to 64.71%.

e. None of the above